I concluded that. that IBM was not alone. Igor Ansoff. although the experts knew
. Working in the personal computer division was especially exciting as we were breaking new ground. quantitative research. After ﬁve years of intense study. C. As you might guess. PS2 with Micro Channel Architecture and OS2. The IBM PC was one of the biggest success stories of the decade. however. we worked on the development of other IBM products. Gary Hamel. or create. after putting in long hours over many years. dry beer and others. Henry Mintzberg and others. K. Costly mistakes like these should never be made. Many organizations failed to put enough concentrated effort into their strategic planning and product planning processes and often faced unfortunate results. we were sickened by the fact that these products were dismal market failures. They became known as PCjr.Preface
When joining IBM in 1980. Ken Andrews. After its release. decision making and total quality management. As a result. I began to inquire as to how IBM’s PC strategies were formulated and was shocked to ﬁnd out what little effort was put forth in this area. I found it hard to believe that IBM’s product and business strategies could be so incredibly ﬂawed. the NeXT desktop computer. ideas and methods that shaped the ﬁeld of strategy formulation. I studied various approaches to qualitative research. It was at that point that I made a commitment to myself to ﬁnd. The 1980s gave way to many strategic failures including New Coke. a strategy formulation process that would prevent organizations from making such costly strategic errors. It was apparent. market segmentation. It was obvious that businesses could operate much differently. Alfred Chandler. Kenchi Ohmae. Pepsi AM. I was proud to be associated with such a respected and proﬁtable organization. Prahalad. I studied the works of experts in the ﬁeld including Michael Porter. Over the next ﬁve years I spent most of my time studying the theories.

methods for gathering pertinent information were established. IBM. and many still do today. Teledyne. Motorola technologist Robert Pennisi.D. So I set out to create a strategy formulation process that would generate a breakthrough strategy in every situation in which an organization attempted to formulate a business. it was veriﬁed that this pattern existed in every situation in which an organization created a successful strategy. offered to make the following contribution. Telectronics. One such client is Motorola. To accomplish this task. that a process for strategy formulation could not exist. They may choose to react to complaints that have been made by
.x
Preface
the beneﬁts of having a good strategy and knew what a good strategy was supposed to accomplish. advancements were made in the ﬁeld of ‘‘requirements’’ gathering. United Technologies and many other organizations. Dr. The ﬁrst step in this effort was to uncover the universal principles that were applied by organizations as they successfully created breakthrough strategies. I found that most strategists believed then. organizations may choose to take the same actions that have made them successful in the past. With a background in Neuro Linguistic Programming (NLP). and would continue to be. Medtronic. including the formulation of successful strategies and solutions. I left IBM and became a consultant to mostly Fortune 100 companies. I was able to detect a pattern that proved to be the impetus for the creation of a universal structure for strategy formulation. NLP and other behavioral sciences. Telematics. During this period. Pacesetter. it was thought that the complexities associated with strategy formulation were too numerous to control and that strategy formulation was. Pﬁzer. Through ongoing testing. Since that time. I set out to prove that this thinking was incorrect. Our strategy formulation process evolved quickly as we constantly focused on making improvements. In fact. there was no real ‘‘process’’ for creating a breakthrough strategy. Many of our clients have received tremendous beneﬁts as a result of applying this process. I knew that any set of activities or behaviors could be modeled. Motorola. After years of observation. Hewlett-Packard. my colleagues and I have completed strategy formulation projects with Allied Signal. an elusive art form that only a few gifted individuals could master. and the tools required to process this information were created. It was at this point that I knew a strategy formulation process would evolve. and today we have in our possession possibly the most advanced and complete strategy formulation process in the world. I applied pattern detection techniques that are often used in physics. Interestingly enough. benchmarking and positioning. many other obstacles were overcome on the way to creating an advanced strategy formulation process: the essential elements of strategy formulation were deﬁned. Pennisi writes: When formulating company and product strategies. product or operational strategy. From that point on. Ph. As a result. Johnson & Johnson. Southcorp..

developing and backing the strategies. but never knowing which of them will succeed. products. internal objectives or a desire to do something different? Or will it be those who systematically use facts. Financial and resource investments made in opportunities that ultimately fail must be avoided. In our quest for improvement in this area. As a result. As a result. Given the increasingly competitive nature of most businesses and the advent of global markets.Preface
xi
existing customers. we benchmarked many approaches to the process of strategy formulation. services and technologies that will ultimately win out. products. we have been able to focus on systematically creating and delivering that value. organizations were forced to nurture multiple opportunities until the obvious winners emerged. customer satisfaction and overall proﬁtability. We have been able to create low-cost product platforms and highly valued segment speciﬁc solutions. Which organizations will be best positioned for the future? Will it be those who base their company and product strategies on past successes. As competition stiffens and resources become more constrained. organizations have pursued the development of multiple strategies. Our six-sigma initiative has become the cornerstone for many continuous improvement programs. a reactive approach to strategy formulation may be a recipe for failure. The process introduced in this book describes the most advanced approach to strategy formulation that could be found. customer complaints. The ability to effectively strategize. This process has provided us with a clear understanding of what our existing and potential customers value. we want to be certain that we are only investing in. competitors’ actions. plan and position has become the critical path to success. Organizations may base their company and product strategies on internal goals such as cost reduction or quality improvement. we recognized that the future success of our organization is dependent on its ability to choose which markets. or respond to new products from competitors that have resulted in good press or in the loss of a traditional customer. structure and process to formulate strategies and solutions that address the unique aspects of their situation and enhance their ability to create customer value? Motorola has put forth a tremendous effort in past years to improve its internal processes. services and technologies knowing that only a few of them will succeed. We have been able to rank existing and prospective tech-
. After making vast improvements in our overall operational efﬁciency. Achieving this objective greatly reduces expenses and overhead while dramatically improving time to market. products and actions to pursue and which technologies to invest in. They may choose to react to managers who believe the organization must simply do something different. Historically. Non-value producing investments and activities must be eliminated.

We are focused on ensuring this process is ﬂawless and on improving the tools that simplify its application. executives. many of our clients have come to know the beneﬁts that can be received from applying this advanced strategy formulation process. The advanced strategy formulation process introduced in this book makes it possible to achieve these and other objectives. thereby accelerating the creation of customer value. academicians and
.
Through ﬁrst-hand experience. This process is being made available to internal and external consultants. This process. For example. this process and the theory behind it have taught us many valuable lessons. These tools are being created by Strategyn. They must be able to quantitatively determine which strategies. we have proven to ourselves that breakthrough strategies and solutions can be created consistently and systematically. the use of this process has enabled us to make decisions that are based on statistically supported facts rather than relying on subjective information. geography and price point often share a common set of desired outcomes. We have learned that traditional approaches to market segmentation rarely provide the best view of the market. We have proven that traditional approaches to strategy formulation typically produce concepts that deliver incremental rather than breakthrough improvement. they must be able to identify what their customers and potential customers value most.xii
Preface
nologies for their potential to satisfy future market opportunities. Organizations that successfully achieve these objectives will be well positioned for the future. personal or political motivations or intuition. technologies. Over the past three years. As organizations prepare themselves for the future. since individuals across industry.com. They must ensure their employees have access to technologies that enable them to make customer-driven. Individuals within our organization have come to realize the importance of having the right information to make and inﬂuence decisions. which has been improved continuously since its initial application. And ﬁnally. products and activities to pursue. The strategy formulation process and theory introduced in this book provide structure to what was once the unstructured world of strategy formulation. In addition. They must be able to successfully uncover areas of opportunity. we have discovered that breakthrough products and services can be developed with current. We have been able to use this information as a basis for agreement and as a means by which to gain consensus from cross-functional teams. value generating decisions. strategists and planners. change agents. off-the-shelf technologies and do not always require new technology. will continue to evolve over the coming years. managers. We have uncovered value producing product features that would have otherwise been undiscovered or ignored.

. how it has rewritten the rules of strategy formulation and how it can be used immediately to create value for organizations and their customers. This book describes where this process is today. how it has evolved.Preface
xiii
others who are involved in the ﬁeld of strategy formulation.

.

Brent Jacobsen. Pete Shaw. Edmund Dolfen. have made lasting impressions. Andi Champagne. Dr. Ron Varney. my literary agent. I would also like to thank Jeff Herman. although too many to mention. Rick Faleschini. Chris Pike. James Busse. Ray Leon. As projects were executed for companies around the world. Gary Kaiser. Rick Korchak. and Alan Sturmer of Greenwood Publishing Group for their efforts and support in editing and publishing this book. Ted Fluchradt. Dave Sapuppo. Mitch Auran and Gary Ekstrom. John Brooks. Jill Ernst. Published authors who have devoted their lives to the study of strategy formulation. Dr. Philip Smith. my assistants. John and Joyce Eisenhauer. Linda O’Brien and David Ramsay. Mark Nevins. Wil Wengert. Joseph Rexroad. Steve Golton. Bob Pennisi. Theresa Bradshaw. Michael Walker. Ed Herrero. Bill Nordeen. Peers and colleagues that have made contributions to this process include Robert Hales. many company employees made contributions that led to improvements of the process.Acknowledgments
Many individuals have inﬂuenced the thinking that ultimately led to the creation of this advanced strategy formulation technology. Mike Clouthier. Tom Murphy.
. They include Dr. Kurt Hofmeister. Jim Clossick. Andrew Tiede.

.

but a process that provides organizations with the power to systematically accelerate the creation and delivery of customer value.Introduction
This book is written for individuals who are prepared to engage themselves and their organizations in an Intellectual Revolution: a revolution in which organizations create their own futures. a revolution in which an organization of any size can possess the structure. This degree of improvement has been made pos-
. and determine which products and services concepts to pioneer. which alliances to form. a revolution in which organizations understand what their customers value and use that information as the basis for their actions. United Technologies. make value-generating investment decisions. With the use of this advanced process. which activities to pursue and which trade-offs to make. This revolution is the result of breakthrough ideas and theories that have evolved the process of strategy formulation from an art to a science. information and processing power required to formulate strategies and solutions that will strengthen its strategic position. Johnson & Johnson and other companies in the United States. this book introduces an advanced strategy formulation process that is not only fueling an Intellectual Revolution. which core competencies to build. Hewlett-Packard. Its use often results in strategies and solutions that have been documented to deliver up to 10 times more value than those derived through the use of traditional strategy formulation methods. In short. Medtronic. This advanced strategy formulation process has been developed and proven over the past seven years. organizations have the power to consistently and effectively anticipate future opportunities. It is being used effectively in organizations such as Pﬁzer. encourage change and focus on the creation of value. Motorola. Paciﬁc Rim and Europe.

challenge existing assumptions and are viewed as counterintuitive. This book explains this new science and describes how it can be applied by organizations around the world to formulate strategies that consistently produce breakthrough results. As a result. information and processing power.xviii
Introduction
sible through a unique integration of structure. will learn to engage your mind. the type of thinking that is often required to produce breakthrough strategies. Those of you. deletions or oversimpliﬁcation. support and management processes. It is enabling organizations to put into practice the theories espoused by strategists and academics such as Michael Porter. Peter Senge. who are ready to challenge your thinking strategies and are willing to leave the comfort of your existing paradigms. Many of the concepts presented in this book are new. product and service strategies and strategies that evolve an organization’s operational. Gary Hamel. yourself. internal and external consultants and others will be forced to question what they once thought to be true. to make fact-based decisions and to create the strategies and solutions that are required to overcome their biggest challenges. K. many company executives. It explains precisely why most organizations fail to understand what their customers value and demonstrates why this phenomenon is a root cause of failure in most strategy formulation processes. Organizations are using this process to harness their collective knowledge and wisdom. planning and decision making without generalizations. managers. It unveils a structure that addresses the complexity of strategy formulation. This process is being used to formulate overall company strategies. It reveals technological advancements that are making it possible for any organization to possess the capability to effectively formulate breakthrough strategies and solutions.’’ measurement systems and competitive analysis. Kenichi Ohmae and a host of others. strategist Gary Hamel asks. This book is intended to help organizations unravel the mystery surrounding the concept of strategy and the process of strategy formulation.’’ The aim of this book is to provide the business world with not only a deep theory of strategy creation but also a process that enables the application of this theory. It deﬁnes the essential elements of strategy formulation and will change forever the way organizations think about customer ‘‘requirements. A process that integrates facts with methods for non-linear thinking. ‘‘Can we do anything to increase the fertility of the soil out of which strategy grows? One good place to start is to develop a deep theory of strategy creation. and your organization in an Intellectual Revolution. It is this unique combination of ideas and theories that has given birth to the science of strategy formulation. Let your journey begin—now. Prahalad. The advanced strategy formulation process introduced in this book combines many discoveries and innovations with unique applications of ideas and theories from different ﬁelds and disciplines.
. In his article titled ‘‘Killer Strategies’’ (1997). C.

output and economic growth. individuals have access to a tremendous amount of information on literally thousands of subjects. it is argued that they would create another revolution—an Intellectual Revolution. If organizations possessed the capability to generate breakthrough ideas. In the early 1920s.
. new technologies resulted in dramatic increases in worldwide productivity. the Industrial Revolution brought about dramatic increases in productivity. Again.’’ With the advent of computers. strategies and solutions. Since that time.Chapter 1
The Intellectual Revolution
In the late eighteenth century. In 1969. output and economic growth. such as power-driven machinery. the Internet and on-line services. Fueled with new technologies. society witnessed the start of the ﬁrst modernday business revolution—the Industrial Revolution. Such a revolution could again bring about dramatic increases in productivity. Imagine how powerful we would be if we could then take all that information and immediately process it to uncover the strategy or solution that would generate the most value for all those involved in a given situation. man ﬁrst landed on the moon. we have entered into the Information Age—an age in which ‘‘information is power. The 1950s brought the computer and the space age. output and economic growth. Imagine if we could consistently create strategies and solutions that delivered up to ten times more value than those that are normally created. new manufacturing technologies enabled the mass production of a wide variety of products. We must ask: Does this information alone make us powerful? Or does the power really lie in our ability to use this information to create value for ourselves and others? Imagine how powerful we would be if we could possess and structure all the information that is required to create value generating strategies and solutions.

Motorola. It is providing them with a means to overcome their most important business challenges. In Commitment: The Dynamic of Strategy (1991). the process of strategy formulation can be formalized if the applied process does not limit creativity and innovation or limit the strategic options that are considered. In contrast to most books written on the subject of strategy. Hewlett-Packard. Through the application of this advanced strategy formulation process. planning and decision making have been transformed from an art to a science. Michael Porter stresses the importance of creating a unique and valued competitive position. Many individuals and strategists believe that the complexities associated with strategy formulation are too numerous to control and that a systematic approach to strategy formulation could not exist. be able to take the steps that are required to create breakthrough strategies and solutions. This transformation is evolving the ability of many open-minded organizations to create breakthrough strategies and solutions. Teledyne. for the ﬁrst time. planning and decision making. It addresses the issues that
.2
Business Strategy Formulation
The world is on the brink of an Intellectual Revolution. many barriers to effective planning were addressed. it is focused on describing how an organization can put into practice the theories that are espoused by some of the world’s leading strategic thinkers. K. strategists such as Henry Mintzberg have concluded that the process of strategy formulation cannot be formalized. The importance of effective planning and positioning is well recognized within most organizations. this one does not address why it is important to formulate effective strategies. Instead. The objective of this book is to introduce the process that is being used to make this transformation possible. The truth is. analysis. a science which many have yet to acknowledge. It introduces new ways to think about the concept of strategy and the process of strategy formulation. the goal of this book is to introduce a process that organizations such as Medtronic. Prahalad advise organizations on the importance of changing the rules of the game. In Competitive Advantage (1985). Pﬁzer. Most strategy formulation processes to date have failed to successfully integrate logic. As a result. for example. This book describes the science of strategy formulation. Gary Hamel and C. many organizations will. This book introduces such a process and explains how it can be used by any organization to formulate the strategies and solutions that will accelerate the creation and delivery of customer value. Pankaj Ghemawat emphasizes the importance of sustaining a competitive advantage. creativity and innovation. Many aspects of strategy formulation. They will be able to participate in the future of strategy formulation as they engage themselves in the Intellectual Revolution. In Competing for the Future (1994). To create this advanced approach to the process of strategy formulation. This book discusses these barriers and how they were overcome. Simply stated. Johnson & Johnson and others are already using to achieve these and dozens of other strategic objectives.

For example.
. Let’s start with a look at the deﬁnition of strategy. The concepts introduced throughout this book are built on a strong foundation. it is important to draw a clear distinction between a strategy.’’ Notice that each of these deﬁnitions of strategy address how a strategy is created or what a strategy is expected to achieve. Henderson states that strategy is ‘‘a deliberate search for a plan of action that will develop a business’ competitive advantage and compound it. involving a different set of activities. over time. how many different deﬁnitions of the word strategy have you been exposed to? The deﬁnition of strategy is the subject of many articles and the cause of many debates.’’ Kenichi Ohmae. Historically. given the concept of strategy literally hundreds of different situation speciﬁc deﬁnitions. in his article titled ‘‘What Is Strategy?’’ (1996). Alfred Chandler deﬁnes strategy as ‘‘the determination of the long-term goals and objectives of an enterprise. As a result. The distinctions can be drawn as follows. it is prudent to start at the beginning. ‘‘deﬁnitions of strategy are like vitamins. states that ‘‘strategy is the creation of a unique and valued position. Bruce D. but rarely does one deﬁnition ﬁt all situations. The deﬁnitions may be appropriate given the speciﬁc situation. the process by which a strategy is created and its expected results.’’ In his article titled ‘‘The Origin of Strategy’’ (1989). hundreds of strategists and organizations have used many different approaches to strategy formulation to achieve a variety of strategic objectives.’’ Over the years. To ensure that foundation is understood. you get one-a-day and most of them are hard to swallow. but they also contain information regarding how a strategy is created. The word strategy is a vague statement that means different things to different people at different times. organizations. consultants and academicians have.
WHAT IS STRATEGY? As a wise person once told me. and the adoption of courses of action and the allocation of resources necessary for carrying out those goals. Much of the cause for debate can be explained as follows: Many deﬁnitions of strategy not only attempt to deﬁne what a strategy is. Michael Porter.’’ In his book titled Strategy and Structure (1962). To overcome the confusion created by this phenomenon. in his article titled ‘‘Getting Back to Strategy’’ (1988). states that strategy means ‘‘working hard to understand a customer’s inherent needs and then rethinking what a category of product is all about. and what a strategy is expected to achieve.The Intellectual Revolution
3
have for years prevented organizations from understanding what their customers truly value.

lowers its product cost. It deﬁnes the steps that must be taken in order to produce breakthrough strategies and solutions. creates a sustainable competitive advantage. pricing products and services. When individuals deﬁne strategy as ‘‘the art of devising plans toward a goal’’ or ‘‘the deliberate search for a plan of action. An effective strategy formulation process should enable an organization to create strategies and solutions that will strengthen its strategic position. increases revenue or market share or accelerates the pace at which it delivers value. A strategy is often perceived as being intangible. Strategies are intentionally developed for many different purposes and under a variety of conditions or situations. Organizations often formulate company strategies. The concept introduced in this book is classiﬁed as a strategy formulation process. plan or solution that is to be implemented. For example. In a non-traditional sense. Creating a Strategy The process by which a strategy is created is referred to as a strategy formulation process. they are deﬁning the process by which a strategy is created. A strategy formulation process results in the strategy. as there is nothing to touch and feel—there are no physical attributes associated with a strategy. It is for this reason that many individuals have difﬁculty distinguishing between a strategy as a plan and ‘‘strategy’’ as a series of actions that yield a plan. they are deﬁning the process of strategy formulation. A strategy is simply a plan—a plan that describes what an organization proposes to do to achieve a stated mission. The expected results of a speciﬁc strategy are not mu-
. The desired results are expected to be different in each unique situation. The Expectations of a Strategy The expected results of a strategy are dependent on the strategist. increases customer satisfaction.’’ for example. product and service strategies and strategies that drive operational. or selecting a target market or improving relations with suppliers or distributors. It is an executable plan of action that describes how an individual or organization will achieve a stated mission. They are not deﬁning what a strategy is. Such a process deﬁnes the steps to take to formulate what will hopefully be the optimal strategy or solution. a strategy may be required for hiring new employees.4
Business Strategy Formulation
A Strategy A strategy is simply a plan. a speciﬁc product or service or an internal process. improving the product development process. a strategist or organization may require a strategy that will ensure the organization achieves its desired competitive position. a product family. An organization may formulate a strategy for the purpose of improving company policy. support and management processes. the organization and the situation for which the strategy is required.

Regardless of the deﬁnition of strategy that is used. Organizations know what they need to accomplish. crossing chasms and creating strategic intent. A company. An organization’s strategy formulation process. stakeholders.The Intellectual Revolution
5
tually exclusive and depend on what is important to the strategist and the organization at the time the strategy is being contemplated. When individuals deﬁne strategy as ‘‘an attempt to develop a competitive advantage’’ or ‘‘an effort to ensure an organization’s ongoing proﬁtable growth. An effective strategy formulation process may in itself become a competitive advantage. This ultimately controls the amount of value an organization creates for its customers.’’ for example. they are actually deﬁning the results that they expect to receive from a strategy that is effectively created and implemented for their organization at that time. consultant or academician perceives the role of strategy. they are deﬁning what they would like the strategy to help them achieve. But what happens when an organization actually attempts to formulate a strategy. They are not deﬁning what a strategy is. An ineffective strategy formulation process negatively impacts an organization’s rate of growth and overall competitive position. This book is focused on the process of strategy formulation—a process that. whether it is formal or not. is the mechanism by which its actions. produces a plan that enables an organization to achieve its stated mission. Making these distinctions when analyzing various deﬁnitions of strategy helps to clarify how a speciﬁc organization. in effect. within your organization. stockholders and others. Over the years. organizations have learned to recognize the importance of creating competitive advantages and core competencies. competing on time. what processes are used to formulate strategy? How was the strategy formulation process developed or selected? Is a formal process used? What steps are taken to create a strategy? Do different parts of the organization deﬁne the concept of strategy differently? Do they have different strategy formulation processes? Are they effective? Do they consistently produce breakthrough strategies?
. The deﬁnition of strategy that is used by an individual provides insight into how they think the strategy should be created and what they expect the strategy to help them achieve in that situation. executes a variety of strategies at many levels of the organization to serve a variety of purposes. This is the reason why many individuals have difﬁculty distinguishing between a strategy as a plan and ‘‘strategy’’ as the outcome of effectively executing the plan. An effective strategy formulation process is a prerequisite for success. investments and decisions are determined. an organization’s ability to strengthen its strategic position is dependent on one important factor—its ability to create the strategies that produce the desired results. but do they know how to create breakthrough strategies and solutions that will enable them to achieve those results? Ask yourself. when executed effectively. deﬁne a plan or make a complex decision? Organizations may know what results they are attempting to achieve. migrating value.

This. They are natural barriers in that they result from limitations that are inherent to most individuals and organizations. Since they are natural barriers. What are the inhibiting factors? What obstacles are encountered when formulating an effective strategy or plan? What would happen if the obstacles were identiﬁed and overcome? We will soon ﬁnd out. deliver the optimal products and services and achieve the optimal competitive position. it would then be able to optimize its investment decisions. What prevents an organization from consistently formulating the strategies and solutions that create the most value? The ability to formulate breakthrough strategies and solutions has been inhibited by what can be described as three natural barriers. politics. product or service strategy. First. NATURAL BARRIERS TO CREATING BREAKTHROUGH STRATEGIES AND SOLUTIONS Recall the last time that you were involved in formulating a company. in turn.6
Business Strategy Formulation
Since breakthrough strategies and solutions are not all that common. was the mission clear? Were all the appropriate customers considered? Were all their requirements properly captured and understood? Did everyone agree on the criteria that were to be used to evaluate each proposed strategy or solution? Were the decisions based on fact? How did the organization prevent personalities. it is logical to conclude that something is preventing organizations from consistently creating them. let’s examine the barriers that are preventing the consistent creation of breakthrough strategies and solutions. they often go unchallenged and are typically accepted as insurmountable
. would accelerate the organization’s rate of growth and proﬁtability. When going through the strategy formulation process. but what if those obstacles could be overcome? What if an organization could master its ability to consistently make the optimal choices and create the optimal strategies? How much more value would it be able to create for its customers and stockholders? If an organization could consistently create the optimal strategies. Did you conclude with what you would consider a breakthrough strategy or solution? Did it create tremendous value for your customers and your organization? Was everyone committed to the resulting plan or strategy? Recall the process from a technical perspective. personal agendas and gut-feel from negatively impacting the chosen strategy? How did the organization prevent the chosen solution from being negotiated and compromised to the point where its value was diminished? Was everyone committed to the strategy? Was the chosen solution supported throughout its implementation? Was a large percent of the company’s collective knowledge and wisdom infused in the strategy formulation process? Many obstacles tend to stand in the way of creating breakthrough strategies and solutions.

it is simply accepted as one of the complexities of strategy formulation. prioritizes and manages the information that is included in the strategy formulation process? How is the information ﬁltered and organized? What methods are used to prioritize the importance of the information? Does a structure exist? A lack of structure is often accepted as a barrier that cannot be overcome. stakeholder requirements. individuals involved in the strategy formulation process lack a solid basis for agreement or disagreement. manufacturing inputs. strategy formulation and planning sessions often become a forum for argument. they often fail to reach consensus or a conclusion and limit the possibility of creating a breakthrough strategy or solution. executives. Who in your company ﬁlters.The Intellectual Revolution
7
obstacles to success. Solutions are often negotiated and compromised to the point where they lack both value and commitment. When formulating strategies and solutions. Organizations must be able to determine which information takes precedence and how one piece of information impacts another. competitive data. What would happen to the quality of your strategies. In addition. Top strategists rarely address this as a barrier to success. debate.
Structure First. organizations must consider thousands of pieces of information from multiple sources. organizes. It involves the interaction of people and information. industry trends and other information must be considered. regulatory issues. Customer requirements. As a result. Information from customers. negotiation and compromise. What happens when information cannot be structured in a meaningful way? How does that impact the dynamics of a strategy formulation session? Have you ever tried to obtain consensus on a strategy or solution when everybody is using different information as a basis for decision making? Without a structure to organize information. Without a solid structure for gathering and processing information. engineers. organize. This is a complex process. they must be able to determine the order in which to process the information. resource constraints. stockholder demands. organizations often lack a structure that will enable them to ﬁlter. managers. consultants and others must be evaluated. sales representatives. The barriers are deﬁned as follows. prioritize and manage all the information that enters into the strategy formulation process. These barriers were identiﬁed through qualitative and quantitative research that I conducted in companies around the world between 1985 and 1991. plans and decisions if your organization could effectively structure all the information that enters the strategy formulation process? Would this be the ﬁrst step toward an Intellectual Revolution?
.

Unfortunately. individuals often base their strategies. which pieces are missing or how to obtain the information they need. individuals have access to large amounts of information. internal constraints and competitive positioning data? The inability to capture all the information required to effectively formulate strategies and solutions is often accepted as a barrier that simply cannot be overcome. plans and decisions if they were based on 100% of the facts? What if you had access to all the prioritized desired outcomes of your internal and external customers. What would happen to the quality of your strategies. all the constrainst imposed on the solution and knew what competitive position you wanted to achieve? Would an Intellectual Revolution be closer at hand? Processing Power Third. deﬁne plans and make complex decisions. plans and decisions. but how often do they know all their customers’ desired outcomes? How often do they know which desired outcomes are most important? As a result of missing or inaccurate information. Ask yourself. the human mind is limited in its ability to know. which pieces should be eliminated.’’ He goes on to say. plans and decisions on an incomplete or inadequate set of facts. Psychological research suggests that individuals consider only a small number of variables when contemplating strategies. individuals often do not have the information they need. or know what information they need. much more than ever before. to create breakthrough strategies and solutions. Henry Mintzberg points out that ‘‘much of what is considered as ‘hard’ data is often anything but. individuals must be able to simultaneously process literally hundreds of pieces of information when attempting to formulate strategies. when contemplating a business or investment strategy. This clearly contributes to the inefﬁciency of most strategy formulation processes and the ineffectiveness of the strategies they produce. For example. ‘‘there is a soft underbelly of hard data’’ typiﬁed by the fallacy of ‘‘measuring what is measurable. But they may not know which pieces of information are important.’’ Many organizations simply use the information they have at hand to assist in strategy creation without questioning its value or relevance. deﬁning a product or service plan or making a trade-off decision. how often do you have access to 100% of the facts? How many of your decisions are based on 100% of the facts? How often do you have access to 100% of your customers’ prioritized desired outcomes. Psychologists generally agree that individuals rarely consider more than ﬁve to nine pieces of
. process and apply all the pertinent facts that are required when conducting these activities. Sure. organizations often talk about providing strategies and solutions that satisfy their customers’ desired outcomes.8
Business Strategy Formulation
Information Second. remember. In The Rise and Fall of Strategic Planning (1994).

says that individuals often rely on ‘‘a small set of human intellectual potentials. how often do you rely on your internal decision-making capabilities to determine which strategy or solution will work best in a given situation? How many pieces of information can you process at one time? Do
. Now consider that in most strategic situations there may be over 100 solutions (variables) and between 50 and 300 evaluation criteria (constants) that must be considered to effectively formulate a strategy. in Frames of Mind: The Theory of Multiple Intelligences (1983). ‘‘Phenomena and events in the real world do not always ﬁt a linear model. This is an obvious barrier to the formulation of breakthrough strategies and solutions. strategies. Howard Gardner. It is true that strategy formulation requires non-linear thinking. plans and decisions are rarely optimized.’’ This sounds great. Kenichi Ohmae states. it is that ultimate non-linear thinking tool. for example. Despite this fact. Some strategists encourage this behavior. Most people cannot solve this relatively simple equation in their head. As a result. Ask yourself. Rather. but in the complex world of strategy formulation there are few people that can meet this mental challenge. As a result. and y x 1
In this situation you are asked to solve this equation given two variables (x and y) and the numerical constants. to determine the values of x and y given that:
2x y 3. but it is also true that the human mind requires assistance in processing all the information that is required to think in a non-linear fashion. the most reliable means of dissecting a situation into its constituent parts and reassembling them in the desired pattern is not a step-by-step methodology such as systems analysis. you may be asked. for example. An analogy of this situation is as follows: When solving a simultaneous algebraic equation.The Intellectual Revolution
9
information at a time. businesses and individuals often rely on their internal decision-making capabilities to determine which strategy or solution will work best in a given situation. Without the assistance of additional processing power. perhaps as few as seven in number. individuals often fail to effectively process all the information that must be considered when attempting to formulate a breakthrough strategy.’’ It follows that when formulating a strategy it would be nearly impossible for an individual to accurately deﬁne the optimal solution for any complex situation given that there are often hundreds of possible solutions from which to choose and over 100 different evaluation criteria that must be considered. Hence. the human brain. In his book titled The Mind of the Strategist (1982). the probability of an organization choosing the strategy that will deliver the optimal results is near zero.

and processing the information in an effective manner.8 . or group of people. or a basis for agreement or disagreement. plans and complex decisions. Their formulation is often attempted without all the facts and without the processing power that is needed to simultaneously process all the required information. 80% efﬁcient at obtaining the required information and 80% efﬁcient at processing the information. information and processing power they require to consistently formulate breakthrough strategies and solutions. As a result. How efﬁcient is your organization at executing each of these aspects of the strategy formulation process? Can it afford to be less than 90% efﬁcient? These barriers must be eliminated before organizations can dramatically increase the amount of value they create for themselves and others. Think back to the results of your last strategy formulation experience. If each aspect is 60% efﬁcient. capturing the required information. If each aspect is 50% efﬁcient. the overall process efﬁciency drops to 13%. information and processing power that is required to choose the optimal solution is rarely available. The structure. This book describes how these barriers have been overcome. make you less conﬁdent in your chosen action? The fact is that individuals seldom choose the optimal solution when contemplating strategies. Structuring all the information that is presented is difﬁcult and time consuming.8 . Obtaining the information that is required to uncover the optimal solution is often impractical as the required skills and resources are rarely available.10
Business Strategy Formulation
the processes you use alleviate any confusion that may be caused by attempting to simultaneously process hundreds of pieces of information? How many potential solutions are considered? How many potential solutions exist? At what point do you stop searching for a ‘‘better’’ solution? Does new information. then the overall process efﬁciency drops to just 22%. when it becomes available. Strategies and plans are often formulated without an information structure. to create the optimal solution without additional processing capability.
. then its strategy formulation process is about (. Assume for a moment that the process of strategy formulation is comprised of only the three steps that have been mentioned: organizing the information in a structure. If an organization is 80% efﬁcient at structuring the information that is entered into the strategy formulation process. these inherent limitations are often simply accepted as insurmountable obstacles or natural barriers to greater success and inhibit the formulation of breakthrough strategies and solutions. It describes what organizations must do to obtain the structure. How conﬁdent were you that the chosen solution was the optimal solution? Was the optimal solution ever even considered? Was the chosen solution reconsidered or changed prior to implementation? The need to simultaneously process more than ﬁve to nine pieces of information at a time makes it difﬁcult for any one person.8) or 51% efﬁcient.

these ideas and theories have evolved into an advanced strategy
. several emerging technologies from unrelated disciplines were integrated into a strategy formulation process by the principals of my consulting ﬁrm. organizations have made many attempts to ﬁnd simple ways to deal with complex realities. Our knowledge was speciﬁcally focused on creating a strategy formulation process that would provide the world with:
1. information and processing power that is required to formulate breakthrough strategies and solutions. activities and actions will create and deliver the most value now and in the future? How does it choose what investments. It was apparent to us that strategy formulation was not simply a business ritual but a combination of many intricate activities that required intimate knowledge of many disciplines. prioritize and manage the information that enters the strategy formulation process. business. Ideas. This explains why many organizations are using this process to replace or enhance their existing strategy formulation processes. A structure that enables organizations to successfully organize. ﬁlter and sort requirements and other information that is required to create breakthrough strategies and solutions. Since 1991. A process that enables organizations to capture. 2. activities and actions to pursue? Organizations must constantly address a variety of complex strategic issues. most have failed to eliminate the natural barriers to success. research and study and was designed to speciﬁcally attack the three barriers that prevent the consistent creation of breakthrough strategies and solutions.The Intellectual Revolution
11
OVERCOMING THE NATURAL BARRIERS TO SUCCESS Does your organization successfully anticipate future opportunities? Does it know which technologies to pursue. We have quantiﬁed that the strategies and solutions resulting from this process are ‘‘breakthrough’’ in the sense that they often deliver up to 10 times more value than strategies and solutions that are created through the use of traditional methods. psychology. Despite the number of strategy formulation methods that exist. which alliances to form and what kind of people to hire? Does it know which investments. concepts and theories from disciplines such as statistics. which core competencies to build. ﬁlter. mathematics and computer science were used to create this advanced strategy formulation process. The tools that deliver the processing power that is required to simultaneously process all the information needed to uncover the optimal strategy or solution. In 1991. the process resulting from our efforts provided the structure. This process was the result of years of effort.
In short. This magnitude of improvement is accelerating the rate at which organizations create and deliver value to their internal and external customers. quality. what product or service concepts to back. The Total Quality Group. communications. Given the disparity between our inherent limitations and the desire to create strategies and solutions that deliver the greatest value. 3.

but at 40% of the cost. were asked to compare their traditional strategy formulation process to the CD-MAP process. They were asked to respond. who have applied this process. quantitatively. products. Identify and select target markets. Organizations are effectively using this process to choose which markets. Optimize investment and trade-off decisions. to a series of questions that offer insight into the effectiveness of the strategy formulation processes that they use. 5. a Fortune 100 company discovered how to reduce the cost of development by over 80% while reducing development time by nearly 75%. A medical device manufacturer used this process to create a line of angioplasty balloons that took them from less than 1% market share to a market leadership position in just two years. product and operational strategies.12
Business Strategy Formulation
formulation process that we now call The Customer-Driven Mission Achievement Process. investments and activities to pursue to strengthen their strategic position. when using this process to improve the development and testing of composite materials. The following study gives you an idea of the degree to which this process has overcome the natural barriers to success. A cardiac pacing system company used this process to create a product concept that offered the same function as a highly valued competitive product. The results of the survey are documented in Table 1. Optimize product and service concepts. technologies.1. For example. They are making discoveries that often form the basis for a distinctive and sustainable competitive advantage. or CD-MAP. 2. As you read through the questions. 6. support and management processes. 7. organizations are using this process to:
1. you
. Formulate short-term and long-term product and service strategies. For example. A manufacturer of industrial packaging used this process to create a company strategy that increased their market share by 10% in an environment in which the top 10 players had less than 50% market share.
This process has been used across many industries and for many purposes and consistently produces breakthrough results. Improve many other operational. Formulate strategies that reduce time to market. Devise company-wide and division-wide operating strategies. 4. They were asked to compare the strategy formulation methods they typically use to the CD-MAP process for each of the stated criteria. 3. This process is being used by Fortune 100 companies and other organizations around the world to create a broad array of company. 8. Approximately 60 individuals from organizations around the world. Create strategies that improve their value-added processes. They are identifying value-producing activities that complement. reinforce and optimize one another.

It enables organizations to win today’s battle for intellectual leadership so they will be likely to win tomorrow’s
. It empowers individuals—gives them the power—to effectively contemplate strategies. intuition and gut-feel.The Intellectual Revolution Table 1.1 An Evaluation of the CD-MAP Process
13
can evaluate the strategy formulation process used within your organization in the space provided. This process is focused on ensuring organizations make the choices. formulate the strategies and deﬁne the plans that create the most value for their customers and investors. plans and decisions. Individuals using this process recognize that it dramatically reduces the percent of decisions that are negatively affected by politics. Dramatic improvements have been made to the process of strategy formulation along each of these dimensions. They also recognize that it reduces the percent of strategies that are negotiated and compromised to the point that they are void of value. In addition. they recognize that it increases the number of individuals whose knowledge and wisdom are used to formulate the strategy. As a result. At the same time. the users of this process recognize that it dramatically increases the percent of decisions that are based on 100% of the facts as it enables organizations to capture and understand what their customers value and deﬁne evaluation criteria that all can agree on. more people within the organization believe they have uncovered the optimal solution. and they are committed to the result.

or affected by. TERMINOLOGY It is important to have a clear understanding of the terminology that is used to describe the concepts introduced in this book. risk and effort. The optimal solution will also be the solution that delivers the most value for the least cost. improving an organization’s ability to manufacture a product or improving an organization’s ability to formulate a strategy. A predictive metric may also be referred to as a predictive success factor (PSF). plan or decision that is being contemplated. the customers may include surgeons. A competitive advantage will often arise as a result of a breakthrough solution. Predictive Metric: A parameter that can be measured today to ensure its corresponding desired outcome will be achieved in the future. A mission may be large or small in scope. plan or decision. plan or decision that is being contemplated. As an example. that describes an important beneﬁt they would like to receive from the strategy. Concept: An idea.
Breakthrough Solution: A solution or strategy that satisﬁes over 50% of the customers’ desired outcomes better than an existing strategy or solution.
. Desired outcomes are unique in that they are free from solutions. Optimal Solution: The one solution or strategy that will satisfy the largest number of important desired outcomes given the internal and external constraints imposed on the solution and the competitive position that is desired. The terms will only be used in the context in which they are deﬁned. To reduce the time it will take to internalize the concepts that are put forth. A predictive metric is measured and controlled in the design of the solution and predicts the solution will satisfy one or more desired outcomes. the manufacturer of the product and the individuals within the organization who are providing the solution. It is a driving force behind the Intellectual Revolution. Several concepts are described using words that may have other meanings. Breakthrough solutions also often provide an organization with a unique and valued competitive position. support staff. several potentially ‘‘vague’’ words are deﬁned below. A mission may include improving a surgeon’s ability to conduct the process of surgery. hospital administrators. Mission: A speciﬁc task or project with which an individual or organization is charged. if an organization wants to improve the process of surgery. the strategy. Customer: An individual or group of individuals involved in. made by an individual involved in or affected by a strategy. The optimal solution is typically a breakthrough solution. strategy or potential solution in its conceptual or theoretical stage.14
Business Strategy Formulation
battle for market leadership. free from vague words such as ‘‘easy’’ or ‘‘reliable’’ and are statements that are stable over time. Desired Outcome: A desired outcome is a statement. speciﬁcations and technologies. Breakthrough solutions often deliver up to 10 times more value than commonly implemented solutions and enable an organization to leapfrog their competition.

Strategy Formulation: The process of creating a strategy. actions or events that produce a desired result. When applying this process. It is an executable plan of action that describes how an individual or organization will achieve a stated mission. Examples of processes include conducting surgery. business.
The language used throughout this book is precise. Strategy formulation processes used by most organizations fail to provide the structure. psychology. support and management processes. A proposed solution is often referred to as a plan or a strategy. SUMMARY In this chapter we have established the fact that a process for strategy formulation does exist and that it is capable of consistently delivering breakthrough results. Information relates to the types of data that are required for the successful execution of the process. This process was the result of years of effort and required the integration of knowledge from disciplines such as statistics. calculate and process the information that has been gathered to deliver a breakthrough result. ﬁltered and structured for use. It may be helpful to reference the deﬁnitions stated above. This strategy formulation process is focused on overcoming the barriers that typically stand in the way of formulating breakthrough strategies and solutions. Strategy: A strategy is a plan.The Intellectual Revolution
15
Process: A series of activities. These barriers are often simply accepted as insurmountable obstacles to success. This process embodies the science of strategy formulation. Processing power relates to the power that is required to simultaneously analyze. developing a product and formulating a strategy. manufacturing a product. Solution: A speciﬁc set of features that form the elements of a plan or strategy. The barriers are deﬁned as structure. communications. organizations have been able to consistently formulate strategies and solutions that deliver up to 10 times more value than those formulated using their existing strategy formulation methods. Organizations that have used our advanced strategy formulation process have been able to successfully overcome these obstacles. They have used this process to successfully formulate overall company strategies. quality. Value: The degree to which important desired outcomes can be satisﬁed while minimizing cost. Structure relates to the way information entering the strategy formulation process is organized. product and service strategies and strategies that drive the improvement of operating. information and processing power that is required to formulate breakthrough strategies and solutions. It has transformed
. making an acquisition. information and processing power. A comprehensive list of commonly used words and their meanings can be found in the Glossary. risk and effort. as required. mathematics and computer science. and deﬁne how the desired outcomes will be achieved.

Throughout this book. you are introduced to the concepts. and you will learn how you and your organization can use this process to participate in the Intellectual Revolution. You will learn how it can be applied successfully in any organization. You will learn why this process works and how to apply it.16
Business Strategy Formulation
the process of strategy formulation from an art to a science. theories and ideas that have made this transformation possible.
.

As we studied the process of strategy formulation. high-level thinking strategy that embodies the logic that organizations can use to formulate breakthrough strategies. analysis.Chapter 2
Transforming the Thinking Process
In his book titled The Age of Unreason (1989) Charles Handy writes. and until now. By high-level thinking strategy we mean the mental or subconscious logic that individuals apply when formulating a strategy. we discovered that organizations around the world had adopted an unspoken high-level thinking strategy that guided their approach to strategy formulation. ‘‘We are all prisoners of our past. for hundreds of years. We found that this logic.
. although ineffective. and it is often executed without question. is often simply accepted as a fundamental of strategy formulation. This logic is based on our natural tendencies and instincts. It is hard to think of things except in the way we have always thought of them. It required thinking differently about the very concept of strategy. This new logic lays the foundation upon which the future of strategy formulation has been built. and it drives a natural sequence of activities that most organizations follow when attempting to formulate a strategy. without question. It has been accepted. But that solves no problems and seldom changes anything. creativity and innovation required new thoughts and new ways of thinking about strategy formulation. This alternative logic resulted from the application of modeling and pattern detection techniques that were focused on improving the strategy formulation process.’’ Creating a strategy formulation process that integrates logic. this logic has remained unchallenged. We will then introduce a different. We discovered that individuals inherently follow this set logic. We will introduce this logic and explain how for years it has undermined the process of strategy formulation and inhibited the creation of breakthrough strategies.

We live in a solution-based world. who is going to be involved or do you begin to brainstorm potential solutions? When the team responsible for formulating a strategy is gathered together and given their mission. 3.
This logic dictates that individuals in the organization devise alternative solutions. what actions do they take? What becomes the focus? The process? Structure? Solutions? Let’s say. The critical steps deﬁning this logic are summarized as follows. Note the order of the steps. conjoint analysis. We have created methods for brainstorming solutions. Intuition and gut-feel may affect the evaluation. the immediate focus when involved in formulating a strategy or plan of any kind is the brainstorming of potential solutions. individuals use various methods to think of alternative ideas and solutions. what is your ﬁrst inclination? Do you instinctively start thinking about the process that you are going to follow. What is your ﬁrst thought? Do you think about several potential new product concepts? What is the ﬁrst step you will take? Will you talk to customers to see what they want? What if you were asked to improve your company’s order entry process? What is the ﬁrst step you would take? If you are like most individuals. We are often rewarded for devising good solutions. negotiation and compromise until the ‘‘best’’ solution is devised. peers or superiors present us with a problem we often take pride in offering solutions. talking to customers or other techniques. deﬁne plans and make complex decisions. We are motivated in many ways to focus on solutions. quantitative research or other methods may also be used in the evaluation process. the strategy formulation team considers the ideas that are presented and begins a process of debate. The methods may include brainstorming. We are taught to focus on solutions. Second. From our earliest age.18
Business Strategy Formulation
SOLUTION-BASED LOGIC What actions do you and your organization take when formulating a strategy? How does the process begin? When offered the challenge of formulating a strategy. for example. This solution orientation has set the framework for the high-level thinking strategy that is typically used by organizations when they formulate strategies. research. When attempting to ﬁnd the best strategy or solution. Third. organizations inherently follow a set logic or a natural sequence of activities. Scientiﬁc methods such as concept testing. Most people are solution oriented. The methods used to accomplish this task may include the review of supporting data and may involve debate. When our business associates. we are taught to ﬁnd solutions to problems. These activities are often executed subsconsciously and shape the organization’s approach to strategy formulation. you were asked to improve your company’s existing product line. 2. First. the individuals on the strategy formulation team discuss and evaluate each of the proposed solutions to determine which solution is best. evaluate each solution and then reach consensus on which solution is
.
1.

for example. evaluating and selecting solutions. The elements of Solution-Based Logic are shown in Figure 2. The key characteristic of this approach is that it starts with the creation of the solution. This pattern reﬂects the traditional thinking strategy that is used by many organizations to formulate strategies. As the sessions proceed. deﬁne plans and make complex decisions. The use of this logic is instinctive. it is often executed subconsciously. The underlying logic here again is to devise alternative solutions. Prior to the ﬁrst session. the participants organize their ideas and solutions and prepare presentations that are intended to communicate their ideas to others and convince them of their value. Team members evaluate the proposed solutions using a variety of methods and criteria. In a typical strategy formulation scenario. is this the logic that is followed by individuals in your organization when they are asked to formulate a company strategy. support or management process? The basic premise behind this logic is to ﬁrst focus on the creation of the solution and to then focus on how well the solution meets the criteria that are being used to evaluate the solution. those responsible for creating a company strategy may be brought together for a series of strategy formulation sessions. evaluate each solution and then reach consensus on which solution is best.
.Transforming the Thinking Process Figure 2. Solution-Based Logic deﬁnes the sequence of activities that are commonly performed by organizations when they execute their strategy formulation processes.1. the participants present their ideas and solutions to the group. We call this logic Solution-Based Logic in that it is focused on generating. The group debates the value of each solution and the presenters defend and support their positions. The solutions are debated.1 Solution-Based Logic
19
best. Ask yourself. modiﬁed and negotiated until consensus and agreement are reached. a product or service strategy or a strategy that is needed to improve an operating.

The use of Solution-Based Logic dictates the dynamics that most organizations experience when formulating strategies today. recognition or peer acceptance at stake? How were the proposed strategies and solutions evaluated? Was the optimal solution created? Was the optimal solution chosen? What problems arose? We will demonstrate that the use of Solution-Based Logic inhibits many organizations from formulating breakthrough strategies and solutions. Does your organization inherently apply Solution-Based Logic when formulating its company. This ﬁxation on solutions is what has caused most organizations and individuals to completely overlook the fact that a better way to formulate strategies may exist. Using the algebraic equation analogy. the use of Solution-Based Logic is like guessing the solution to a complex algebraic problem and then testing to see if you guessed the right solution. which segment to target. has been observed in individuals. Let’s consider the following example. how to position the product or service. When formulating a company strategy you must make decisions regarding which market to target. The use of this thinking strategy often goes unchallenged. position. employees. Its use is responsible for the gross inefﬁciencies that exist in most strategy formulation processes today. investors. Most people underestimate the number of possible solutions that are technically possible when formulating a strategy in a given situation. To gain some insight into these dynamics. People inherently talk about and focus on solutions. managers. is destructive and prevents organizations from formulating breakthrough strategies and solutions. which products and services to offer. product. This includes executives. service and operating strategies? Is there an inherent focus on solutions? What problems. and there is a good chance that you will never guess the optimal solution. if any. How did the activity start? Did individuals propose solutions that they perceived to be best? Were they then required to convince others of the value of their proposed solution? Did they defend their proposed solutions with a complete set of facts? Were emotions involved? Did they want their solutions to win? Was power. APPLYING SOLUTION-BASED LOGIC The application of Solution-Based Logic is found in most organizations today. recall the last time you were involved in an activity in which a strategy. plan or decision was being contemplated. stakeholders and others. If you have ever attempted to use this approach when solving a complex algebraic equation. does the application of this logic cause your organization? We will show that the application of this logic. or pattern. how the
.20
Business Strategy Formulation
This logic. customers. you’ve undoubtedly recognized that guessing is not an efﬁcient approach to problem solving. although pervasive. organizations and cultures around the world. Challenging the use of Solution-Based Logic is a critical step in evolving the process of strategy formulation.

some would be very successful and some would be disastrous. or if they propose one on their own. especially when you consider the fact that most organizations have a tendency to consider relatively few alternatives. If there are only seven alternatives for each of the nine decisions. but there may be more. As a result.607 potential strategies. how to manufacture the product. These drawbacks affect the way a strategy is formulated and diminish the effectiveness of the resulting strategy. By deﬁnition. but they will be judged personally as well. Could these inefﬁciencies be linked to the use of Solution-Based Logic? As you will see. The answer is seven to the ninth power or 40. how to distribute the offering. when using Solution-Based Logic. that the company has only seven alternatives for each of the nine decisions. Robert Bailey summarizes his research on ineffective decision making and strategy formulation by stating that individuals involved in the strategy formulation process tend to:
1. the answer is clearly yes. while most would fall somewhere in between. how many different strategies are possible? The answer is not 7 times 9 or 63 different strategies. individuals are put into a position where they must defend their proposed solution. what the advertising message should be and how the offering should be promoted. When proposing an idea or solution. They negatively affect the dynamics between people within the organization. Solution-Based Logic has at least three major drawbacks. and their ability to convince others of its value. In Human Performance Engineering (1989). for the sake of illustration. they know they will have to present their idea to others and convince them of its value. they approach zero. of course. In reality. Suppose. people ﬁrst come up with solutions. 3. At this point. the act of simply proposing an idea or solution triggers an interesting but unfortunate set of dynamics.353. Use a fraction of the available information. Consider too few alternatives. of course. not only will their ideas be judged. Hesitate to revise their ﬁrst options. 4.
This characterization of the strategy formulation process makes it obvious why most organizations fail to efﬁciently execute their strategic planning processes and formulate breakthrough strategies. 2. The three major drawbacks are deﬁned as follows. But what are the chances of an organization selecting the optimal solution from over 40 million possible alternatives? Statistically speaking. there may be fewer than seven alternatives. The ﬁrst major drawback is that the use of this underlying logic and a ﬁxation on solutions places people in a defensive position and prevents them from focusing on the creation of value. Among all these possible strategies.Transforming the Thinking Process
21
offering should be priced. Their proposed solution. Whether people are asked to propose an idea or solution. They are the cause of unnecessary friction and inhibit the creation of value. Overaccumulate information. now becomes
.

creative and deserving of respect. A second major drawback of Solution-Based Logic is that it does not set out to create a basis for agreement.22
Business Strategy Formulation
a matter of personal concern. Why do organizations accept this somewhat barbaric approach to strategy formulation? What are their alternatives? Would organizations be better off if individuals worked toward the common goal of creating value without being subject to pressures that motivate them to behave in a defensive manner? A change in logic is required to make this possible. individuals intentionally pit people against other people or functions against other functions to see who can defend their position the best. they may not be focused on the prime objective of creating customer and stakeholder value. The debate and disagreement occur because people are focused on solutions and rarely take the time to deﬁne and agree on the criteria that is to be used to evaluate the proposed solutions. then they will certainly not be able to agree on which solution is best. Individuals actively look for information that supports their proposed solutions. what constraints the company faced and what competitive position was desired? Did everyone agree on the criteria that were being used to determine which proposed solution was best? Were decisions based on facts? Was agree-
. In some organizations. When people become defensive. They may use information out of context to support an idea. its use provokes unnecessary debate and causes disagreement when solutions are evaluated. They are often more concerned with their careers and personal well-being. People may even create or fabricate information that supports an idea or proposed solution. Being placed in a defensive position does not always bring out the best human qualities. Their ability to present and defend their proposed solutions suddenly becomes tied to protecting their own perception of self-worth. think back to the last time you were involved in an activity in which a strategy. but it is likely to create bad feelings and deteriorate working relationships. Many people believe that if their peers accept their proposed solution. organizations rarely take the time to deﬁne and agree on the criteria that should be used to evaluate proposed solutions. The strategy that is defended the best often becomes accepted for implementation. If an organization cannot agree on the criteria that should be used to evaluate the potential of a solution. they lack a basis for agreement. people often do what they have to to defend their ideas. With a ﬁxation on solutions and a motivation to quickly reach a conclusion. Did each person have their own criteria by which to evaluate proposed solutions? Did that criteria favor their proposed solutions? Did the organization take the time to gain agreement on which criteria should be used to evaluate the proposed solutions? Did each person in the room have a different understanding of what your customers valued. they may feel they have failed. As a result. it will signify they are competent. In fact. If it is not accepted. plan or decision was being contemplated. Again. This approach is unlikely to produce a breakthrough strategy. They may conceal information that refutes their position. As a result.

was the cause of failure in any of your company’s recent business. an organization may come across a breakthrough solution and never know it. how likely is it that a breakthrough solution will be discovered? How can an organization expect to formulate a breakthrough strategy if it does not have or agree on the facts or criteria that should be used to evaluate the potential of alternative solutions? How will the organization ever know what solution is best? Making decisions without a complete set of facts often results in failure. product. This can happen because the individuals involved do not know what criteria deﬁne
. Poor planning often results from an organization’s inability to gather. As a result. Can this be any indication as to what percent of all strategies. structure and process factual information. The use of Solution-Based Logic inhibits the effective execution of the planning process and can be cited as a cause of poor planning. The criteria. service and operational strategies. They often deﬁne the criteria with this purpose in mind. These inefﬁciencies cause unnecessary debate and are not conducive to the formulation of breakthrough strategies and solutions. poor planning is cited as the single biggest reason for the failure of company. product. how likely is it that consensus will be reached? More important. The criteria to be used to evaluate the potential of each solution are seldom agreed on. They rarely identify other important requirements that the strategy will not satisfy. if any.Transforming the Thinking Process
23
ment reached on the chosen solution? Was consensus achieved? Was everyone committed to the solution? The use of Solution-Based Logic does not provide an organization a basis for agreement. inaccurate or they may not be agreed on. George Gruenwald states that ‘‘between one third and two thirds of all new products that are introduced result in failure. a change in logic is required to make this possible. people have a tendency to use the criteria that support their position so the solution they are defending will win. In his book titled New Product Development (1992). that individuals use to support their proposed solutions may be incomplete. plans and decisions result in failure? What is your organization’s success rate? What.’’ This does not include the hundreds of products that are developed but never introduced. or facts. So why do organizations attempt to formulate strategies without having a basis for agreement? What are the alternatives? Would organizations be better off if individuals could work toward the common goal of creating value in an environment where everyone agreed on the criteria that is being used to evaluate the solutions that are proposed? Again. Individuals present the beneﬁts that their strategy will deliver and emphasize the importance of those beneﬁts. service or operational strategies? According to many sources. When using Solution-Based Logic. A third major drawback of using Solution-Based Logic is that it does not provide a means to quantify the potential of a proposed solution or enable an organization to determine if a breakthrough solution has been created. They may unknowingly reject it in favor of a less attractive solution. Instead.

They are focused only on defending the solutions they initially proposed and rarely know what constitutes value in the eyes of the customer or the company. could its eventual failure have been predicted in advance? Could the failure have been avoided altogether? Contemplate how this may be possible as we continue on with our explanation of Solution-Based Logic. If a strategy or solution can be classiﬁed as a failure after it is introduced. to know if the optimal solution has been created. I would like you to contemplate the following.24
Business Strategy Formulation
a breakthrough solution. But ask yourself the following question. Did all those involved believe they had created a breakthrough solution? Did everyone know why one solution was better than another? Did everyone agree on how to make a solution better? At what point did you stop searching for a better solution? Was the optimal solution proposed? Would anyone have known if the optimal solution had been proposed? How did you set out to create the optimal solution? The use of Solution-Based Logic often precludes the creation of the optimal solution. To make matters worse. The use of Solution-Based Logic is mainly focused on creating. It is as unlikely as guessing the answer to a complex algebraic equation. Therefore it is difﬁcult. How many alternative solutions did you consider in your last strategy formulation exercise? Five? Eight? A dozen? In any strategic situation. it does not provide a basis for agreement. they never know how much value a proposed solution is capable of delivering. thousands or even millions of potential solutions in the universe of possible solutions. As a result. The criteria that deﬁne the optimal solution are often unknown. many strategies are categorized as failures only after they have been introduced or implemented costing the company time. Recall again the last time you were involved in an activity in which a strategy. there may be hundreds. But what is the chance that one of the dozen or so proposed solutions is actually the optimal solution? And if it was. what is preventing an organization from knowing it is going to fail in advance of its introduction? According to what criteria did it fail? If those criteria were known. Unfortunately. The use of Solution-Based Logic puts people in a defensive position. how would you know? The fact is that the random creation and selection of the optimal solution is unlikely. These are just three of the major drawbacks of using Solution-Based Logic in the process of strategy formulation. This makes the prospect of formulating a breakthrough solution even more unlikely. money and proﬁts. and used to evaluate the potential of the concept to begin with. defending and negotiating solutions. Before we continue. You know that the optimal solution does exist. if not impossible.
. organizations tend to evaluate only a few alternative solutions out of the thousands or millions of potential solutions that exist. plan or decision was being contemplated. and it does not provide a means to determine if a breakthrough solution has been created.

The strategies that were proposed conﬂicted with each other. the strategies were debated. demonstrate the application of Solution-Based Logic and its impact on the execution of the strategy formulation process. The participants were asked by the president to present their ideas for a division strategy. After each presentation was made. the president gave an overview of recent company performance and informed the team of his goal to increase division sales by 20% and proﬁts by 10% per year for the next ﬁve years. Other questions were intended to debunk. As the session began. Some questions were intended to clarify points. Few positive comments were made as most of the effort was focused on ﬁnding the holes in the proposed strategies. Four executives offered their ideas and proposed four alternative strategies. persuasive presentations and the loud-
. the executives used whatever tactics they knew to defend their proposed strategies. Scenario 1: Formulating a Division Strategy Division management of a Fortune 100 company was given its annual task of formulating an operating strategy for the division. which are based on actual experiences in companies that will remain unnamed. They were well armed with ﬁnancial data and used it to convince others that their proposed strategies would meet the aggressive ﬁnancial objectives set by the president. discredit and ridicule the strategies that were being proposed. Knowing what was expected. the participants debated the merits of the proposed strategy. reﬁned and negotiated in an attempt to obtain consensus. It became evident that the proposed strategies were not only devised to meet the presidents’ objectives but were also intended to enhance the careers of those proposing the strategies. Each team member used different criteria to evaluate the potential of the proposed strategies. The challenge to the 12member team was to deﬁne and agree on a strategy that would enable the achievement of these goals. The president chaired the session. To ensure the participants remained focused on this important activity. They wanted to ensure the elements of their strategies were accepted.Transforming the Thinking Process
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TRADITIONAL STRATEGY FORMULATION SCENARIOS The scenarios stated below highlight some of the activities that transpired during planning sessions that employed traditional strategy formulation methods. The drawbacks of using this approach are also described for each scenario. It was obvious that each participant evaluated the proposed strategies from a different perspective. When questioned. several participants were prepared to present their proposed strategies to the group on the ﬁrst day. The vice-presidents of each major function were asked to attend along with the lab director and a legal advisor. the president of the division scheduled a three-day meeting at a resort hotel in Aspen. As a result. Members of the group asked the presenters several questions regarding their proposals. Participants with the most staying power. Each strategy was challenged. The scenarios. Colorado.

They did not have access to the information they needed to create a customer-driven strategy. The chosen strategy was shown to meet the organization’s ﬁnancial objectives. had difﬁculty reaching an agreement. Each
. In reality. they never attempted to agree on a set of evaluation criteria.’’ They go on to say that ‘‘typically. The team did not have all the facts that they required. After the three-day session was complete. the participants followed the sequence of events dictated by Solution-Based Logic. now how are we going to produce it?—Than it is about developing industry foresight. The participants did not agree among themselves on the criteria that deﬁne a breakthrough strategy. the various functions debated the value of each proposed strategy. Analyzing Scenario 1 As stated by Gary Hamel and C. The debate did not address which customers should be targeted. The strategies were then discussed and evaluated using criteria that were incomplete and not agreed on. In formulating this strategy. Once these decisions were made. As time ran out. As a result. Their ﬁrst focus was to propose several strategies or solutions.’’ The example stated above is no exception.—This is the revenue and proﬁt growth we need this year. K. Prahalad in Competing for the Future (1994). For two and a half days. which customer requirements were most important or which competitive position they desired. the planning process is more about making numbers add up. the strategies were negotiated and compromised to the point where they were void of true commitment.26
Business Strategy Formulation
est voice faired best in convincing the others of the merits of their proposed strategy. nor did they establish a basis for agreement. The strategies were then negotiated and compromised to reach a conclusion. With three hours remaining on the third day. A couple of participants were overheard talking about proposing changes to the agreed-on strategy when it came around for ﬁnal review. the proposed strategies were negotiated and compromised so that agreement could be reached. worked together to gain consensus on a strategy. the participants. the strategy they created was less than optimal at creating customer value. The participants. They spent most of their time defending their proposed strategies with the information they had prepared. realizing that time was running out. however. It was an attempt to formulate a strategy that would enable the organization to meet its ﬁnancial objectives. They had access to ﬁnancial information and used it to produce a ﬁnancial-driven strategy. It was to be documented over the following days and sent out for ﬁnal review and signatures. several team members spent a day or two skiing together. In fact. the president stepped in and made several key decisions that were required to break the remaining cross-functional deadlocks. ‘‘in many companies strategy means turning the crank on the planning process once a year. Few new alternative strategies were introduced.

features and speciﬁcations. Executives from different parts of the business speak different languages. information and processing power that is required to formulate breakthrough strategies and solutions. In a subsequent conversation. The new products were required for introduction within 12 months. and they inherently apply the use of Solution-Based Logic.Transforming the Thinking Process
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executive was forced to give up something they believed to be important. it would be much more appropriate for use within his organization. many companies cannot really manage by fact. Yet. acting with good intentions and focused on customer satisfaction. As stated by Bradley Gale in his book Managing Customer Value (1994). engineers. several members confessed that maybe 10% to 20% of the decisions were based on 100% of the facts. many of the participants talked to customers to obtain their requirements. The project manager chaired a series of product planning sessions that took place over a one-month period. Scenario 2: Formulating a Product Strategy A product planning team in a Fortune 100 company was given the responsibility of deﬁning a product strategy for its company’s main line of products. Others suggested that it was less than that. the planners. As the ﬁrst planning session continued. promised the potential customer that it would be resolved. Organizations typically lack the structure. Management by fact is the path to competitive advantage. These requirements. company executives. occasionally. Politics. The potential customer told the executive that if his company’s product had a speciﬁc feature set. gut-feel and emotion drove the ﬁnal result. The executive. and the ‘‘boss’’ ultimately makes decisions based on his or her own subjective criteria. which included lists of solutions. It is important to ask what percent of the decisions made in this process were based on 100% of the facts. Facts did not play a major role in supporting the chosen strategy. Prior to the sessions. managers. The use of Solution-Based Logic often drives an organization down an unproductive path. engineers and others proposed the product concepts they believed would best satisfy the customers’
. A marketing executive came to the ﬁrst session to propose a product concept that resulted from a conversation that took place with a potential customer on an airplane two weeks earlier. sales people and. were used by the participants as the basis for creating alternative product concepts. The scenario stated above could be varied in numerous ways and still have many of the same limitations. The result: the team fails to achieve fact-based consensus. The participants included planners. Scenarios like the one stated above portray a real picture of how strategic planning activities are conducted in many organizations today.

the results would be used to conﬁrm the best concept had been chosen. The participants used requirements they captured from customers as the basis for many of their proposed concepts. and they seldom invent. Upon reviewing and debating the results. The participants with the most staying power. they chose to develop the concept that received the most favorable review. In addition to concept testing. prototyped and prepared for concept testing with customers in a focus-group environment. which is a specialized form of market research that enables an organization to determine which combination of attributes are preferred by various segments of the population at various price points. They then began to design and develop the concept. As the second session began. the participants took the customers’ words as gospel and
. Many of the requirements that were captured simply described solutions and features that the customers requested. for mostly political reasons the executive’s proposed concept was accepted by the participants as one of the top contenders. the three prototyped concepts were presented to the focus group participants. Following their advice often leads to the creation of me-too products. and they were asked to choose which one they believed delivered the most value. the debate continued. They did not establish a basis for agreement but rather focused on defending the concepts they proposed. defended and were eventually negotiated and compromised to narrow the number of concepts under consideration to just three. The concepts were then debated. Their ﬁrst focus was to propose several product concepts. the team members met to review the ﬁndings. Unfortunately. At this point. political clout. In any case. Analyzing Scenario 2 The participants followed the sequence of events dictated by Solution-Based Logic. It was found that the requirements captured by one participant often conﬂicted with requirements captured by other participants. After much debate and using subjective evaluation criteria.28
Business Strategy Formulation
requirements. engineers or strategists. Their concepts closely reﬂected the solutions that were requested by the customers to whom they had talked. After concept testing was completed. the planning team also elected to conduct conjoint analysis. The presenters were armed with new information and used it in an attempt to defend and gain support for their initially proposed solutions. Some customers wanted one solution. Although it would take up to four months to complete this research. customers are rarely technologists. Unfortunately. the group reduced the number of concepts under consideration to just three. Not everyone agreed that the best three concepts were selected. and others wanted alternative solutions. A large part of the planning activity involved the debate and discussion of these conﬂicts. the top three concepts were documented. persuasive presentations and the loudest voices faired best in convincing the others of the merits of their proposed product concepts. Three weeks later.

As part of conjoint research. The project manager ended up making a unilateral decision in selecting the top three concepts. but as he said. they were evaluated using concept testing. the team had little choice but to consider it as one of the top concepts. curtail the company’s production capabilities and impact the development of other offerings that were already planned. but many participants recognized that if it were developed. They were not convinced that the decisions made to select the top three concepts were based on a complete and accurate set of facts.Transforming the Thinking Process
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fought to defend the solutions that they heard their customers request. Many participants secretly hoped that this concept would not be selected. they failed to agree on which concepts were best. The debate often degraded to the point where participants tried to discredit a concept based on which customer the inputs came from. it would negatively impact other customers. ‘‘that is why I get the big bucks. participants are asked to trade-off between several attributes that are part of a complete concept. therefore. To make matters worse. It is also possible that they were evaluating concepts that were not valued at all. the marketing executive’s idea was placed high on the list of valued solutions by the planning team. The team did not have the information it needed to refute the concept proposed by the executive. The solution that the executive supported may have taken care of the potential customer that made the suggestion. Each proposed concept was defended with customer inputs. They were asked to choose which of the three they perceived to be the best. The product planning team also elected to conduct conjoint analysis. while its competitors are developing a compact disc or DVD
. An organization may be sorting out the best attributes for an eighttrack tape player. and they did not gain consensus on what the customers valued. The team failed to establish a basis for agreement. When conducted as stated. but it worked its way through the product planning process for the wrong reasons. several team members suspected that the concepts selected by the project manager for evaluation were pet projects that were easy to implement. To nobody’s surprise. As a result. It is possible that the customers were evaluating three highly valued concepts. The solution may have been promised by the executive with good intentions. It does not make provisions to determine if the solution that is assumed is a valued solution. yet they were forced to choose the one they preferred. They admitted that it was not the ﬁrst time that this executive reacted to comments made by a potential customer. customers were asked to evaluate three concepts out of thousands of possible solutions.’’ Once the concepts were narrowed down to the top three. In conducting this test. They felt politically obligated to do so. The major drawback of conjoint analysis is that it assumes a solution and the attributes associated with that solution. This type of testing may or may not result in the selection of a product that will be accepted in the market place. concept testing is a high-risk approach to product planning and strategy formulation.

Outcome-Based Logic is an alternative high-level thinking strategy that offers a different approach to the process of strategy formulation. This scenario portrays a real picture of how product-planning efforts are conducted in many organizations today. and it is no wonder why most new product efforts fail.30
Business Strategy Formulation
player. This approach challenges the use of Solution-Based Logic altogether. As another possibility. and it lays the foundation upon which the future of strategy formulation has been built. what is Outcome-Based Logic? Simply stated. Outcome-Based Logic is a high-level thinking strategy that drives an organization to focus on outcomes rather than solutions. It enables an organization to overcome the limitations that are associated with SolutionBased Logic and breaks down the natural barriers that often stand in the way of creating breakthrough strategies and solutions. changing the way we think about the process of strategy formulation offers many new opportunities. but may be evaluating unimportant or trivial attributes. creativity and motivation. lack a basis for agreement and do not know when they have created a breakthrough solution? What are the alternatives? Would organizations be better off if individuals could work toward the common goal of creating value without facing the complexities associated with the use of Solution-Based Logic? A change in the underlying logic that is commonly used to formulate a strategy is required to make this possible. The use of Solution-Based Logic makes people defensive. So why do organizations attempt to formulate strategies in an environment where people are defensive. We will discuss these techniques in more detail in the next chapter. This transformation begins with the introduction of Outcome-Based Logic. This new logic was discovered after years of observation. fails to establish a basis for agreement and makes it difﬁcult to know if the optimal solution has been created or chosen. The discovery of OutcomeBased Logic resulted from the application of modeling and pattern detection techniques that I used to study the process of strategy formulation. information and processing power they need to formulate strategies. As we will see. Sometimes. we must simply give ourselves permission to challenge our existing paradigms and recognize that change is exciting and can provide a source of energy. an organization may be focused on the right product.
. Combine this with the fact that most organizations also lack the structure. It redeﬁnes the sequence of activities that take place when formulating strategies and solutions. So. In fact. this characterization of the strategy formulation process puts into perspective why most organizations rarely formulate breakthrough strategies and solutions. DRIVING THE INTELLECTUAL REVOLUTION WITH OUTCOME-BASED LOGIC We are only prisoners of our past if we let previous experiences limit our ability to accept new ideas and new ways of thinking.

Or when formulating a product strategy. Second.
1. then it would make sense to formulate a strategy that would incorporate a mechanism that enables overnight shipment. Outcome-Based Logic focuses ﬁrst on deﬁning and prioritizing the criteria that will be used to create and evaluate any potential solution. The outcomes are a list of criteria that describe what the organization would ideally like to achieve with the strategy or solution that is being contemplated. once the criteria are uncovered. in priority order. Third. The criteria that are established describe. Once the criteria are deﬁned.Transforming the Thinking Process
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The critical steps deﬁning this logic are summarized as follows. if you know that portable radio users want to minimize the number of unauthorized recipients who can intercept their communications. The criteria are used to guide the creation of the solutions. The ﬁrst step involves uncovering and prioritizing the criteria that will be used to create and evaluate the proposed solutions. So. When formulating a company strategy. individuals use the list of prioritized criteria to systematically create. then it would make sense to devise solutions that prevent communications from being intercepted by any unauthorized individual. Once several alternative solutions are deﬁned. the next step is to use them to assist the organization in systematically creating a number of alternative strategies or solutions. The criteria provide a means to conduct an effective evaluation of each
. document and prioritize the outcomes they want to achieve. note the order of the steps. It is important to emphasize that the ﬁrst step does not involve the creation of solutions. This may require them to consider the outcomes of the company and its customers. 3. 2. The result is often a breakthrough solution. The concept is simple. what outcomes the optimal solution would satisfy and the degree to which they would be satisﬁed. company constraints and competitive factors. the solution would not deliver the value that is desired—or achieve the desired outcome. the objective is to deﬁne several alternative solutions that satisfy the stated outcomes. then it makes sense to use that information to create a solution that will produce the desired result. individuals within an organization uncover. the results of the evaluations are used to optimize the already proposed solutions until the optimal solution is discovered. Efforts can then be focused on creating that value. which focuses on generating solutions ﬁrst. First. for example. if you know the optimal solution must enable the organization to minimize the time it takes to ship products. The same criteria are then used to evaluate the potential of each alternative solution. for example. an organization can evaluate them against the same criteria to determine which proposed strategy or solution is best. The point is that you know how value is deﬁned. Otherwise.
In contrast to Solution-Based Logic. Again. brainstorm and develop alternative strategies and solutions. if you know what outcomes the optimal solution must achieve.

After several iterations of improvement are completed.32 Figure 2. and then the search begins to ﬁnd or create the solution that will best satisfy that criteria. APPLYING OUTCOME-BASED LOGIC The application of Outcome-Based Logic enables an organization to formulate breakthrough strategies and solutions as it eliminates the three major drawbacks
. The third step in the application of this high-level thinking strategy is to use the results of the concept evaluations as a means to create the optimal solution. if a proposed solution is weak in a certain dimension. plugging in the constants. This is a transformation in logic in that it requires an individual to ﬁrst deﬁne what outcomes the optimal solution must achieve. then other proposed solutions are analyzed to determine if they have the ability to overcome that weakness. the optimal solution is identiﬁed. and then work to create it. The optimal solution is discovered when the equation is solved.2. The concept of Outcome-Based Logic can be summarized in Figure 2. Referring back to the algebraic equation analogy. the use of Outcome-Based Logic is like setting up a complex algebraic problem. The organization must simply determine the degree to which each proposed solution satisﬁes the stated criteria to determine which solution is best. and then systematically solving the equation. The positive elements of each solution are systematically combined to create new solutions that possess even greater levels of value.2 Outcome-Based Logic
Business Strategy Formulation
solution. For example. It will be demonstrated that the use of this logic drives a set of dynamics that are conducive to the creation of breakthrough strategies and solutions. This concept optimization activity involves the proactive elimination of the weaknesses identiﬁed in any previously evaluated solution. It should be noted that this approach is different from Solution-Based Logic in that all the criteria that describe the optimal solution are ﬁrst deﬁned.

In other words. It ensures that all the required criteria. Of course. Contributors do not have to uncover new information to support their proposed solutions or hide information that may point out a weakness. For example. In addition. First.
If everyone knows that value can be created for the organization and its customers by formulating and executing a strategy that would enable the organization to satisfy the stated outcomes. This dramatically changes the dynamics that are involved in the process of strategy formulation. 4. all the outcomes the organization wants to achieve with the optimal solution are known by all in advance of creating or evaluating a solution. Offer products that provide more value than the products offered by any competitor. the use of Outcome-Based Logic enables individuals to be inventive rather than defensive. The discovery of this high-level logic was a major step toward the creation of an advanced strategy formulation process. in the real world there may be up to 300 outcomes. 5. are uncovered in advance of creating any potential strategy or solution. or outcomes. then the efforts of individuals can be focused on devising such a strategy. The potential of each proposed strategy or solution is evaluated by individuals who honor the already-agreed-on evaluation criteria. 2. 6. 5. it enables individuals to work together to create value. 2. Contributors are asked only to document and submit their inventive ideas on how to satisfy the stated criteria. suppose that it is determined and agreed that a new company strategy must enable the organization to achieve the following seven outcomes.
. Individuals no longer have to be defensive. Minimize the time it takes to respond to inquiries that are made by customers. Improve overall employee satisfaction. 4. but to illustrate this point. It establishes a basis for agreement and it provides a structure by which the creation of the optimal solution can be veriﬁed. 7.Transforming the Thinking Process
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associated with the use of Solution-Based Logic. Minimize the time it takes to bring products to market. 3. Let’s analyze the impact that this logic has had on the dynamics of the strategy formulation process. The evaluation phase does not necessarily require the presence of the individual proposing the solution. The pressures that drive individuals to act in a defensive manner are eliminated because:
1. let’s assume that the optimal strategy must enable the company to:
1. Deliver products that are ordered by a customer faster than they could be delivered by any competitor. 3. Increase the production yield to 98%. Contributors are not judged on their ability to present and defend their solutions. Improve the company’s ﬁnancial performance within 12 months.

if a proposed solution satisﬁes the two most important criteria to a great degree. as they are focused on a common goal of creating the optimal solution. They are now free to create and test their own ideas against criteria that deﬁne the creation of value. Second. Individuals can simply propose ideas for others to evaluate against criteria they all agree on. As a result. The solution that best meets the stated criteria will likely be the chosen solution. As a result. They must then simply determine the degree to which a proposed solution satisﬁes the stated criteria. It becomes less likely that politics. It drives them to keep searching for the optimal solution and makes it possible to know when the optimal solution has been deﬁned. It becomes obvious which solutions are best. It enables them to eliminate the weaknesses in a proposed solution. then it will be considered better than a solution that satisﬁes two less important criteria to a moderate degree. The use of Outcome-Based Logic transforms a potentially hostile environment into one that is customer-driven and focused on the creation of value. people can then work in an environment that is conducive to creating value and obtaining consensus. if a proposed strategy or solution satisﬁes all the criteria to the greatest possible degree. Keep in mind that in a real world example. up to 300 criteria may be included in an evaluation. The criteria provide a foundation or basis for agreement. the use of Outcome-Based Logic creates a basis for agreement. All proposed solutions are evaluated against all criteria—no more. It creates an environment in which individuals are creative rather than combative. and as a result they do not waste their time devising or defending solutions that satisfy other less important criteria.34
Business Strategy Formulation
When using this thinking strategy. and if they are not satisﬁed. Individuals know if the criteria are satisﬁed then a highly valued solution has been proposed. For example. They know what criteria the solution must satisfy. individuals are much more conﬁ-
. and no less—so their potential value can be determined objectively. the proposed solution is of less value. Third. Individuals are less likely to argue and butt heads. and it becomes easier to eliminate proposed concepts from the running—regardless of who proposed them. the use of Outcome-Based Logic provides a means by which to create and verify the creation of the optimal solution. For example. It has been established that when using this thinking strategy. all the criteria are known by all in advance of creating or evaluating a solution. gut-feel and intuition will negatively impact the result. It provides the factual data that is required to convince the company president that his idea was not so good after all. When using Outcome-Based Logic. individuals are focused on the criteria that deﬁne the creation of value. The application of this logic enables individuals to determine why one strategy or solution is better than another strategy or solution. The proposal of an idea or solution no longer turns into a personal quest for approval and acceptance. then all those involved in the evaluation will know that the optimal solution has been discovered. They can effectively focus their knowledge on being inventive. the individuals proposing a solution and the people evaluating the solutions know what outcomes the solution is supposed to achieve.

and is often executed without question. although ineffective. as a third step. defending and negotiating solutions. An alternative does exist. By high-level thinking strategy we mean the mental or subconscious logic that individuals apply when formulating a strategy. So. they then debate the value of each proposed solution and. They focus their collective knowledge on optimizing rather than compromising the creation of value.Transforming the Thinking Process
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dent in their ability to create and select the optimal solution. Its application puts people in a defensive position. When applying Solution-Based Logic to the process of strategy formulation. But the discovery of Outcome-Based Logic was only the beginning. this logic has remained unchallenged. lack a basis for agreement and cannot determine if they have created a breakthrough solution. These are just three of the major drawbacks of using Solution-Based Logic to execute the process of strategy formulation. without question. It can be applied effectively in any situation in which a strategy. we applied modeling and pattern detection techniques that led to the discovery of an alternative high-level thinking strategy. and until now. It has been accepted. is often simply accepted as a fundamental of strategy formulation. they decide which solution is best. It is applicable to the formulation of company and division operating strategies and product and ser-
. We discovered that individuals inherently follow this set logic. plan or decision is being contemplated. To overcome the obstacles that are associated with the use of Solution-Based Logic. This logic is based on our natural tendencies and instincts. The use of this high-level thinking strategy is mainly focused on creating. We call this highlevel thinking strategy Solution-Based Logic. The application of Outcome-Based Logic dictates a sequence of actions that enable an organization to formulate breakthrough strategies and solutions. We still needed to uncover the structure. Several more discoveries were required before this high-level thinking strategy could be applied effectively. it does not provide a basis for agreement and it does not provide a means to determine if a breakthrough solution has been created. and it drives a natural sequence of activities that most organizations follow when attempting to formulate a strategy. We found that this logic. We call this new thinking strategy Outcome-Based Logic. deﬁne the information and harness the processing power that would be required to make the execution of this thinking strategy possible. organizations ﬁrst devise alternative solutions. we discovered that organizations around the world had adopted an unspoken high-level thinking strategy that guided their approach to strategy formulation. SUMMARY As we studied the process of strategy formulation. for hundreds of years. organizations do not have to formulate strategies in an environment where people are defensive. Its use rarely results in the formulation of a breakthrough strategy or solution.

rather than compromising. The use of Outcome-Based Logic redeﬁnes how people use information to formulate strategies and solutions. This new logic lays the foundation upon which the future of strategy formulation has been built. the optimization of product and service concepts and to many other strategic activities. The widespread use of valued information and a method to process it changes organizational dynamics. Information is used as a starting point from which to create breakthrough strategies and solutions.1 Differences Between Solution-Based and Outcome-Based Logic
vice strategies.1. the optimization of investment and trade-off decisions. It can be applied to reducing time-to-market. it drives the creation of breakthrough strategies and solutions. rather than combative. This new set of dynamics transforms the process of strategy formulation from a barbaric encounter to a civilized effort to create customer value. when used properly. and. It ensures that valued information is available to everyone and that decisions are based on fact. rather than defensive. the selection of target markets.36
Business Strategy Formulation
Table 2.
. people focus their energy on being inventive. value-added process improvement. They focus their intellect on being creative. There are many clear differences between Solution-Based Logic and Outcome-Based Logic. It provides a basis for agreement and consensus. As a result of applying Outcome-Based Logic. They focus their collective knowledge on optimizing. The differences are summarized in Table 2.

’’ An organization’s ability to make effective choices and control its destiny is dependent upon its ability to formulate effective strategies. Decide how that information should be processed within the structure to effectively create. We have introduced an alternative high-level thinking strategy called Outcome-Based Logic that transforms the way organizations approach the process of strategy formulation. Find or create a structure in which this logic could be organized. we still needed to create the structure. gather the information and harness the processing power that would be required to effectively apply Outcome-Based Logic. The discovery of Outcome-Based Logic was an important step in the evolution of strategy formulation. We have established that organizations often lack the structure. But many organizations struggle to overcome the barriers that have long stood in the way of creating breakthrough strategies and solutions. More speciﬁcally. information and the processing power that is required to formulate breakthrough strategies and solutions. we recognized that we needed to:
1. but many other discoveries were required before the use of this new thinking strategy could be made practical. 3. Determine what types of information would be needed to apply this logic and then determine how to capture that information. It is a matter of choice. We have demonstrated that the inherent use of Solution-Based Logic undermines the effective execution of most strategy formulation processes. Once this high-level thinking strategy was discovered. 2. ‘‘Destiny is no matter of chance. evaluate and optimize a strategy or solution.
.Chapter 3
Structuring the Process of Strategy Formulation
William Jennings Bryan once said.

So we set out to create a structure that would support the effective application of OutcomeBased Logic—a structure that would enable the formulation of breakthrough strategies and solutions in every instance in which an organization sought to formulate a company. and. We will describe the efforts that were undertaken to uncover a structure for strategy formulation—a structure that enables the effective execution of Outcome-Based Logic. a renowned physicist.’’ The complexities associated with the process of strategy formulation are generally thought to be overwhelming. pattern detection has been used to discover the cognitive patterns that are used by geniuses such as Albert Einstein. As we looked for a structure. This pattern detection idea has earned Edward Witten. A UNIVERSAL STRUCTURE FOR STRATEGY FORMULATION AND PLANNING Strategist Gary Hamel stated in ‘‘Killer Strategies’’ (1997) that ‘‘the dirty little secret of the strategy industry is that it doesn’t have any theory of strategy creation. the Fields Medal. Pattern detection is often used as a means to uncover similarities that exist between seemingly unrelated activities. product. We will explain how those efforts resulted in the discovery of a universal structure for strategy formulation. an idea known as topological quantum ﬁeld theory allows physicists to ﬁnd connections between seemingly unrelated equations.38
Business Strategy Formulation
We started by asking ourselves: Does a structure for strategy formulation exist? How have others created breakthrough strategies? What steps have they taken? Why do some succeed in creating successful strategies while others fail? We recognized that it was important to ﬁrst deﬁne a structure for strategy formulation before we could focus on what information would be required and determine how that information should be processed. we applied pattern detection techniques that are often used in physics. In the ﬁeld of NLP. service or operating strategy. as a result. we too realized that a structure did not exist. As stated by Robert Dilts in his book titled Strategies of Genius: Volume II (1994). The objective was to model the behaviors and actions that were taken by organizations capable of successfully formulating breakthrough strategies and solutions. Neuro Linguistic Programming or NLP and other behavioral sciences. many people believe the process of strategy formulation cannot be structured or formalized. In the ﬁeld of physics. This universal structure is being used today as part of our advanced strategy formulation process to enable the formulation of breakthrough strategies and solutions. ‘‘this gives us a way to look past the behavioral content of what people do to the more invisible forces behind those behaviors to the structures of thought that allow these geniuses to accomplish what they
. for example. To accomplish this task. The ﬁrst step in this effort was to understand why certain organizations managed to formulate breakthrough strategies while others failed altogether in their attempts at strategy formulation. Wolfgang Amadeus Mozart and others. the mathematical equivalent of the Nobel Prize.

It ensures the solution delivers more or different value than competing solutions and enables the organization to achieve a distinctive and sustainable competitive advantage. plan or decision. This ensures that the solution creates the maximum amount of value for those involved in or affected by the strategy. Constraints result from a ﬁxed or limited set of resources. As the organization searches through the thousands of potential solutions in the universe of possible solutions. in essence. it was veriﬁed that this pattern existed in every situation in which an organization successfully formulated a breakthrough strategy.’’ It is recognized across many disciplines that the detection of patterns often results in new insights. 2. Honor any constraints that have been imposed on the solution. This pattern. This. We applied pattern detection techniques to the ﬁeld of strategy formulation in an attempt to ﬁnd a pattern that offered insight into the formulation of breakthrough strategies. Achieve their desired competitive position. given the constraints that had been imposed on the solution and the competitive position that was desired. ideas. plan or decision. 3. its successful implementation would be unlikely. Satisfy the largest number of important desired outcomes. Literally hundreds of situations were studied across dozens of industries. in turn. this structure has made it possible to deﬁne the essential elements of strategy formulation—the types of information that must be available to formulate breakthrough strategies or solutions in any situation. it is attempting to achieve three major objectives. In turn. deﬁnes the process of strategy formulation.
. theories. This ensures that the chosen solution strengthens the organization’s strategic position. After years of observation. This ensures that the chosen strategy or solution is practical and can be implemented. models and concepts. enables the organization to achieve high levels of customer satisfaction and obtain a reputation as a creator of value.Structuring the Process of Strategy Formulation
39
have accomplished. Through ongoing testing. The discovery of this pattern has led to the creation of a universal structure for strategy formulation. The pattern that was identiﬁed can be described as follows: In every situation in which an organization was successful at formulating a breakthrough strategy or solution. it is looking for the solution that will enable it to:
1. If a solution were chosen that does not honor the constraints. This pattern indicates that when an organization is contemplating any strategy. it had searched through the universe of possible solutions in an attempt to ﬁnd the one solution that would best satisfy the largest number of important desired outcomes. we detected a pattern that proved to be the impetus for the creation of a universal structure for strategy formulation. This pattern deﬁnes what organizations are attempting to accomplish when formulating strategies and solutions.

a pattern that is common to every situation in which an organization has successfully formulated a breakthrough strategy. What were you attempting to accomplish? What information did you use? What steps did you take? Did you attempt to ﬁnd out what desired
.1 The Universal Strategy Formulation Model. of course. This model. It illustrates how the optimal solution is the one solution from the universe of possible solutions that will best satisfy the largest number of important desired outcomes given the constraints imposed on the solution and the competitive position that is desired. This.1. They may not know about the model. they are attempting to exercise the USFM when they formulate a strategy or plan.40
Business Strategy Formulation
Figure 3. The attempted execution of this model reﬂects a universal pattern. or its elements. or USFM. service and operating strategies. they are attempting to ﬁnd the optimal solution. the desired competitive position and the universe of possible solutions play in the formulation of optimal strategies and solutions. Finding that solution is the challenge that all organizations face as they attempt to formulate their business. Upon discovering this pattern. product. is assuming that they want to formulate a breakthrough strategy. or USFM
The one solution from the universe of possible solutions that will best meet all three objectives is called the optimal solution. but when they are formulating a strategy. Although organizations may not be aware of it. shown in Figure 3. the elements were embodied into what we call the Universal Strategy Formulation Model. And the optimal solution can always be deﬁned as the one that will satisfy the largest number of important desired outcomes given the imposed constraints and the competitive position that is desired. Think back to the last several occasions in which you were involved in formulating a strategy. constraints. describes the role that desired outcomes.

Use all pertinent information to reach a conclusion. Filter out information that is not required. 8. Applying pattern detection
. The USFM describes a structure that addresses the complexity of strategy formulation. Organize information in a meaningful way so that its role and purpose is understood. The methods used to attempt the discovery of the optimal solution may vary. 3. the overall objective was always the same. Nicolas Hayek successfully worked the elements in this model when creating the Swatch. Anita Roddick had a clear understanding of the elements in this model when she founded the Body Shop.Structuring the Process of Strategy Formulation
41
outcomes were important to the affected internal and external customers? Did you consider the company’s limitations or constraints? Did you spend time and effort analyzing the competition. The structure allows an organization to:
1. 7. Reach consensus using facts as the basis for agreement. but the overall objective remains the same in every situation. Properly consider and process information brought forth by any individual. Steve Jobs and Steve Wozniak possessed great insight in these areas when they created the ﬁrst Apple computers. They are attempting to execute this model when they evaluate which markets to enter. planning and decision making without generalization. Organizations are attempting to execute this model when they deﬁne their overall company strategies and new product and service offerings. take the time to mentally apply it to several situations in which a strategy or plan was formulated in the past. they know the constraints they face. Determine what information is needed to create a breakthrough solution. 5.
Successful business leaders often have an inherent ability to exercise this model: they often possess keen insight into the outcomes they are trying to achieve. Notice that regardless of the methods that may have been used. Organize the information into a format that is suitable for processing. 6. When formulating breakthrough strategies and solutions. Agree on the criteria to be used to create and evaluate potential strategies and solutions. organizations are attempting to ﬁnd the one solution that will best satisfy the largest number of important desired outcomes given the constraints imposed on the solution and the competitive position that is desired. 2. Jan Carlzon possessed similar insights when he transformed Scandinavian Airlines (SAS) into a world class airline. which investments to make and which activities to pursue. 4. benchmarking and deciding what it would take to make your organization more competitive? To gain a better understanding of the model. and they have extensive knowledge of their competition. deletions or oversimpliﬁcation.

3. The USFM forms the foundation for a new approach to structured thinking. The competitive position that is desired. A desired outcome is a statement. Desired outcomes are different from requirements—or at least how most people think of requirements. It contains the essential elements of strategy formulation. The model is very powerful in that it applies to every situation in which individuals and businesses contemplate strategies. 2. the optimal strategy or solution must satisfy important desired outcomes.
This information is critical to the success of any strategy formulation process. As stated by Kenichi Ohmae in his book titled The Mind of the Strategist (1982).
DESIRED OUTCOMES Organizations have long recognized that it is important to understand their customers’ requirements. When formulating strategies. made by an individual involved in or affected by a strategy or plan. It has been established that in any situation in which a strategy is required. It essentially deﬁnes the process of strategy formulation. Each element plays a critical role in the strategy formulation process and in the creation of breakthrough solutions. Desired outcomes are unique in that they are free from solutions and speciﬁcations and are free from
. many organizations spend considerable effort attempting to ﬁnd out what their customers value only to conclude that customers do not know what they want and that customer requirements change quickly over time. This implies that before the optimal solution can be discovered. that describes an important beneﬁt they would like to receive from the strategy or plan that is being contemplated. plans and decisions. ‘‘In the construction of any business strategy.42
Business Strategy Formulation
techniques to the strategy formulation processes used by these and other successful businesses is what led to the discovery of this model. an organization must have access to certain types of information. the customer and the competition. What follows is a description of each of these elements. three main players must be taken into account: the corporation itself. The potential solutions that are available. 4. Any constraints imposed on the solution. They are what we call the essential elements of strategy formulation. honor constraints and enable an organization to achieve its desired competitive position. More speciﬁcally they must know:
1. Their customers’ and potential customers’ prioritized desired outcomes.’’ This model integrates these main players into a systematic process for strategy formulation. Its applicability cuts across the boundaries that often limit the use of a strategy formulation process to a speciﬁc situation.

who often make the actual purchase decision. the hospital administrators. nurses and support staff. In this example. or affected by. 2. Enable continuous. 3. each of the statements below are examples of desired outcomes on a surgical system—a system that enables surgeons to effectively perform surgical procedures. Assume that there are only three customer types in this situation—doctors. Desired outcomes often include cost. Whatever the situation. For example. Minimize the amount of patient bleeding. Ensure the complete destruction of unwanted tissue.
The manufacturer of the surgical system has yet another set of desired outcomes. and each customer type would have dozens of desired outcomes. each customer type has its own unique set of desired outcomes.
Hospital administrators. 2. They represent a subset of all the desired outcomes on systems that are used to perform the process of surgery. For example. the strategy or plan that is being contemplated. desired outcomes are also unique in that they are stable over time. unobstructed vision of the ﬁeld.Structuring the Process of Strategy Formulation
43
vague or ambiguous words. time. doctors who use a surgical system desire certain outcomes from the system. Prevent the formation of undesirable scaring. Prevent the injury of healthy tissue. As a second example. there would be several more customer types. quality and other performance or functional beneﬁts. 5. internal company stakeholders and the manufacturer of the system. Minimize the cost of upgrading to future levels of performance. Require a minimal amount of space. Of course. 4. Reduce the frequency with which the device requires planned servicing. Multiple customers typically exist. Require minimal effort to set up for different operations. suppliers. distributors. employees and stakeholders. The manufacturer may want the system to:
. the customers involved in the development of a surgical system may include surgeons. 5. in a real world situation. They may want the surgical system to:
1. As we will demonstrate in the next chapter. When executing the USFM. Experience minimal unexpected down time due to failure. 3. have a different set of desired outcomes. desired outcomes exist for each customer type that is involved in. the customers involved in formulating a company strategy may include the users of the company’s products or services. 4. stakeholders and the manufacturer—and that each customer type has only ﬁve desired outcomes. They may want the system to:
1.

In this simpliﬁed example, the three customer types form what is called the customer set. Based on the experience of many consulting projects, we have established that between two to six customer types are typically included in a customer set when formulating a strategy or plan. It is common to obtain between 25 and 50 desired outcomes for each customer type, and, as a result, 50 to 300 desired outcomes can be expected in total. Desired outcomes are one of the essential elements of strategy formulation. Without them an organization cannot expect to formulate a breakthrough strategy or solution. They must be captured and prioritized to understand what the various customer types value in a speciﬁc situation. When formulating a strategy, deﬁning a plan or making a complex decision, the objective then becomes ﬁnding the solution that will satisfy the largest number of important desired outcomes. The concept of desired outcomes is described in detail in the next chapter. It will be demonstrated that most organizations fail to capture their customers’ desired outcomes when they set out to capture customer requirements. We will further demonstrate that organizations rarely recognize that they have failed to capture what their customers truly value. We have discovered that this is the root cause of failure in most strategy formulation and planning processes today.

CONSTRAINTS Many organizations recognize that when formulating a strategy, it is not unusual to have constraints imposed on the solution. Constraints are typically imposed by individuals within the organization or by a third party. Constraints may be imposed by managers, employees, suppliers, customers, regulatory agencies or others. A constraint is a boundary condition that restricts or limits the number of options that are available for consideration when formulating a strategy or solution. A constraint restricts the number of solutions from which an organization may choose. Organizations must honor the constraints that are imposed on a solution. It is important to note that a constraint cannot be prioritized; it simply must be met. Constraints are imposed for a variety of reasons. When applying pattern detection techniques to the process of strategy formulation, we recognized that constraints are often imposed as a result of:

We also found that constraints exist in almost every situation in which a strategy is being contemplated. For example, when formulating a strategy to create a new surgical system or some other new product or service, an organization may impose constraints that denote that the solution must:
1. Be achievable by a certain date. 2. Meet a speciﬁc cost target. 3. Utilize a speciﬁc technology. 4. Be implemented using existing labor resources. 5. Honor patents that have been registered by competitors. 6. Limit development expenditures to a speciﬁed amount. 7. Meet a speciﬁc government regulation.

Each of these constraints will affect, shape and guide which solution is chosen. As constraints are imposed, the number of potential solutions that the organization is able to consider declines. Conversely, as constraints are removed, a wider range of potential solutions becomes available. Picture the universe of possible solutions contracting and expanding as constraints are added and deleted. The chosen concept, strategy or solution must honor any and all constraints. Therefore, if a proposed solution does not honor the stated constraints, it must be modiﬁed or dropped from consideration. It is not unusual to have between 5 and 30 constraints imposed on a solution, but it is important to minimize the number of constraints that are imposed to increase the number of potential solutions that are available. All breakthrough ideas may be eliminated from consideration if a solution is over-constrained. In addition, an unnecessary or poorly conceived constraint may prevent an organization from achieving its growth and proﬁtability objectives. For example, an organization may constrain a solution by stating that the chosen company strategy must not require more than a $10 million capital investment and must produce a 15% return on investment in two years. Based on these constraints, if the organization came up with a strategy that could produce a 25% ROI in 18 months, but required an $11 million capital investment, it would be rejected. This may result in the loss of opportunity. For this reason, each constraint should be closely scrutinized. It is important to ask what would happen if a stated constraint is not honored. If the result is not debilitating, devastating or ﬁnancially incapacitating, then the perceived constraint may not be a real constraint after all. It is also important to note that as constraints are imposed on a solution, they

46

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may inhibit an organization’s ability to satisfy one or more desired outcomes and may also make it difﬁcult for an organization to achieve its desired competitive position. The organization may be forced to decide if it is more important to honor a particular constraint, satisfy a particular customer desired outcome or achieve the desired competitive position. This is a critical and expected part of strategy formulation. After all, as Michael Porter states in his article ‘‘What Is Strategy?’’ (1996), ‘‘strategy is making trade-offs in competing.’’ Constraints are one of the essential elements of strategy formulation. To effectively formulate a strategy, they must be deﬁned and documented by those involved in the strategy formulation process. Once a constraint is imposed, it must be honored. Therefore, it is important to ensure that each constraint is necessary and justiﬁable. Ask yourself, when formulating a strategy, does your organization identify the constraints that must be honored? When are constraints deﬁned? Are they deﬁned before the ﬁrst solution is evaluated or after the solution is selected? Although the concept of constraints is rather simple, it is amazing how often constraints are uncovered after a strategy or solution has already been selected, sometimes well after implementation has begun. This often forces an organization to make changes to the strategy and, if it is too late to make changes, it may simply degrade the amount of value that can be delivered by the chosen solution. Uncovering constraints before the strategy is chosen is consistent with the effective application of the USFM and Outcome-Based Logic. It is an essential step in the formulation of breakthrough strategies. THE DESIRED COMPETITIVE POSITION Organizations want to choose and implement strategies and solutions that will continually move them or keep them at the forefront of the competition. When formulating strategies, the solution that is chosen is usually worth developing or implementing only if it places the organization in a favorable strategic position. Why would an organization intentionally and knowingly pursue a strategy or solution if a competitor was following a comparable or better strategy, and the strategy did not enable the achievement of a distinctive and sustainable competitive advantage? Clearly, it would not. So, how does an organization determine the competitive position it wants to achieve? The determination must be made as an integral part of the strategy formulation process, and it must not be treated as an afterthought. To achieve a desired competitive position, an organization must ﬁrst deﬁne the desired competitive position it wants to achieve. A well-deﬁned competitive position will be both unique and valued. It will be unique in that it will enable the organization to satisfy select customer desired outcomes better than any other competing solution. It will be valued in that it will ensure the chosen solution satisﬁes desired outcomes that are important to the customer. The competitive position that is desired should also strengthen the organization’s strategic posi-

Structuring the Process of Strategy Formulation

47

tion, enable it to deliver more or different value than its competitors and enable it to achieve a distinctive and sustainable competitive advantage. When deﬁning the desired competitive position, it is better to focus on achieving perfection over the long term than it is to focus on making incremental improvements over the short term. This often requires an organization to think differently about the concept of competitive analysis. Simply stated: In order to effectively deﬁne the competitive position that is desired, an organization must decide to what degree it wishes to satisfy the customers’ valued desired outcomes. This degree of satisfaction may be established relative to competing solutions or relative to perfection. Once the organization decides on the degree to which it wants to satisfy the customers’ desired outcomes, it must pursue the creation of the strategies and solutions that will enable the level of satisfaction to be achieved. Only certain solutions will enable it to achieve its desired competitive position, and very few, if any solutions will enable the achievement of perfection. Expanding on the surgical system example, let’s assume that we only want to consider the hospital administrator’s desired outcomes and that the ﬁve desired outcomes obtained from the administrators are their most important desired outcomes as quantiﬁed through statistically valid research. In reality, of course, all customer types and many other desired outcomes would be considered. In this simpliﬁed illustration, the ﬁve most important desired outcomes are listed on the left in Table 3.1. To deﬁne the desired competitive position, an organization must set the target values that deﬁne the level of satisfaction that they would like the chosen solution to deliver. The organization can set these target values relative to its competitor or relative to perfection. In the example given in Table 3.1, the organization is stating that it wants the chosen solution to satisfy the desired outcomes to the degree indicated by the target values found in the column on the right. The values in the column on the right deﬁne the desired competitive position. If a strategy or solution is created that will enable these target values to be attained, then the organization will achieve its desired competitive position. The values stated should, at a minimum, place the organization in front of its competitors for the most highly valued outcomes. The idea then is to search out, create, innovate and discover the solutions that will make it possible for the organization to achieve this desired level of satisfaction. This is the essence of a unique approach to competitive positioning. Once an organization knows what deﬁnes the creation of value in a given situation—or in other words, which desired outcomes are most important—it can decide the degree to which to satisfy the outcomes based on its knowledge of the competition, its capabilities

THE UNIVERSE OF POSSIBLE SOLUTIONS When formulating a plan or strategy or making a complex decision. As demonstrated earlier. It shapes. leads and guides the creation of the strategy or solution. A large but ﬁnite number of potential solutions exist in every situation. dictates which desired outcomes the solution must satisfy and the degree to which they must be satisﬁed. The desired competitive position. When using Outcome-Based Logic. thousands or even millions of potential solutions often exist. It may be necessary to remove or reﬁne a constraint to achieve the competitive position that is desired.1 Deﬁning the Desired Competitive Position
and its ability to achieve perfection.
. The target values that are set establish the amount of value that the chosen solution must deliver. This approach to competitive positioning leads to the consistent creation of breakthrough strategies and solutions. It is important to emphasize that the desired competitive position is something that is planned. Like desired outcomes. Without this knowledge. once deﬁned. It determines the level of satisfaction that the solution must deliver relative to competing solutions. hundreds. the achievement of the desired competitive position is also inhibited by constraints imposed on the solution.48
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Table 3. it is not uncommon to have as many as 40 million possible solutions from which to choose when formulating a company strategy. it is unlikely that a unique and valued position will be deﬁned. the desired competitive position is deﬁned prior to the creation of the solution. The ability to deﬁne the desired competitive position is dependent on knowing the desired outcomes of the customers in the customer set.

The universe of possible solutions expands over time as new ideas and innovations are made practical and as new technologies become available. and those features can often be combined in various ways to form other solutions. or affected by. for example. New ideas about management. DVD. scientiﬁc research and other markets. anti-noise capability and others are expanding the universe of possible solutions for many other product and service industries. THE OPTIMAL SOLUTION The optimal solution is the solution. from the universe of possible solutions.Structuring the Process of Strategy Formulation
49
Solutions are the mechanism or means by which desired outcomes can be achieved or satisﬁed. fuzzy logic. The optimal solution is the result of a wellexecuted strategy formulation process. it is often the solution that uses technology wisely that accelerates the creation of value. The difﬁculty often lies in sorting through all the potential solutions to determine which will deliver the most value in a given situation. IMPOSING A MATHEMATICAL FRAMEWORK We have deﬁned the essential elements of strategy formulation as customer desired outcomes. organization. These potential solutions form the universe of possible solutions. It isn’t always the solution that includes the latest and greatest technology that works best. Organizations typically live in a Solution-Based world. competitive analysis and employee development are expanding the number of possible solutions an organization must consider when formulating a company strategy. honors the constraints that have been imposed on the solution. constraints and the desired competitive position will be achieved. The universe of possible solutions often contains millions of potential combinations of solutions that exist for a given situation at a speciﬁc point in time. the principle objective is to create or discover the optimal solution. product development. The optimal solution will deliver the greatest value to all those involved in. neural networks. that: satisﬁes the largest number of important desired outcomes. constraints. so it is rarely difﬁcult for them to deﬁne or uncover a variety of potential solutions. When contemplating a strategy. data processing. A fundamental characteristic of a solution is that it must deﬁne how desired outcomes. marketing. the strategy or plan that is being contemplated. competitive positioning data and the solutions that
. positioning. manufacturing. Technologies such as electronic books. digital imaging. The solutions that are considered when formulating strategies and plans are often comprised of a combination of features. plan or decision. expanded the number of potential solutions that were available to organizations that manufacture products for communications. and enables the achievement of the desired competitive position. ﬂat panel displays. The advent of microprocessors.

The variables include a large but ﬁnite number of possible solutions. once the constants in the equation have been established. When looking at this model from a mathematical perspective. When formulating a strategy. The organization is searching through the universe of possible solutions in an attempt to ﬁnd the one solution that will satisfy the largest number of important desired outcomes given the internal and external constraints imposed on the solution and the competitive position that is desired. The solutions are numerous and ever-changing.2. we treat the desired outcomes. deﬁning a plan or making a complex decision. To simplify the understanding and execution of the USFM—especially among engineers. This explanation implies the use of an imposed mathematical structure. The constants deﬁne the criteria that describe the optimal solution. constraints and the values deﬁning the desired competitive position. the information entered into the equation must be processed simultaneously. that combination of variables represents the optimal
. When contemplating a strategy. is to determine which solution. the constants include the desired outcomes. from the universe of possible solutions. We treat the solutions in the universe of possible solutions as variables in the equation. This structure is only imposed to assist in the understanding and the execution of this advanced strategy formulation process. Each constant is assumed to be stable at the point in time at which the equation is being solved. Again. This equation is far more complex than a simultaneous equation found in most algebra classes. the elements of the equation must comply with the principles of mathematical problem solving—they must be deﬁned and treated as either constants or variables. and the role they play as constants and variables in an imposed mathematical equation. when formulating a strategy using the structure deﬁned within the USFM. The essential elements of strategy formulation. are shown in Figure 3. this requires some serious processing power. will enable the equation to close given the constants that have been deﬁned in the equation. plan or decision. So. The objective. In this case. Given that we impose this artiﬁcial structure. an organization is attempting to solve what can only be described as a very complex equation. It is searching through the millions of variables—solutions—to ﬁnd the one that will close the equation given the constants—outcomes. constraints and competitive positioning data as constants in the equation. when solving this equation. To solve the equation. it is not unusual to consider between 50 and 300 constants and often as many as 40 million variables.50
Business Strategy Formulation
make up the universe of possible solutions. constraints and competitive position—that have been deﬁned as important in a given situation. scientists and others with a background in mathematics—we often describe the essential elements of strategy formulation as constants and variables in a mathematical equation. As you might guess. the variables in the equation can be tested until the combination of variables that best ﬁt the stated criteria is uncovered.

The potential solutions that are. frozen at a point in time. available at that point in time are then systematically tested within that framework until the solution that best solves the equation is discovered. constraints.2 Imposing a Mathematical Structure on the Universal Strategy Formulation Model
solution. we have concluded that between 8. Imagine attempting to solve such a complex equation in your head! Ask yourself. This analogy often helps in understanding how the USFM is used as a structure for strategy formulation. This model embodies a uni-
. plans and decisions. they are attempting to exercise the elements in the USFM when they contemplate strategies. possible solutions and positioning data are available when strategies. plans and decisions are typically contemplated? What percent of this information is used? How is it structured? What information is missing? What percent of the time is the optimal solution uncovered? It should be mentioned again that although organizations may not always be aware of it. Keep in mind that the human mind can effectively process only ﬁve to nine pieces of information at one time. The desired outcomes. how does your organization structure and process the information that is required to formulate an effective strategy? To what degree does it incorporate the essential elements of strategy formulation? What percent of the desired outcomes.Structuring the Process of Strategy Formulation
51
Figure 3. They are ﬁxed.000 decisions are typically required when attempting to uncover the optimal solution. or will be. Based on research that we have conducted while executing dozens of consulting projects. That solution will be the optimal solution. constraints and desired competitive position are treated as constants for the point in time at which the equation is being solved.000 and 40.

On average. A VISUAL INTERPRETATION OF THE MODEL For those of you who are more visual. assume that we start with the universe of possible solutions.52
Business Strategy Formulation
versal pattern. This often results in just a handful of remaining solutions. This. As we search through all the solutions. a pattern that describes how organizations are attempting to ﬁnd the solution that will satisfy the largest number of important desired outcomes given the constraints imposed on the solution and the competitive position that is desired. We tested concepts derived from traditional methods that were proposed or implemented prior to the execution of our process. eliminating many of the remaining solutions. These studies were conducted with mostly Fortune 100 companies. we ﬁlter out or eliminate the solutions that do not satisfy the customers’ desired outcomes. dramatically decreases the number of possible solutions that remain.3. They are the only solutions that will ﬁt through all the ﬁlters. the uncovered solutions are often thought to be breakthrough solutions. when using our strategy formulation process. This is a ten-fold improvement over what most organizations experienced when using their traditional methods. the strategies chosen for implementation did not even satisfy the desired outcomes as well as the strategies and solutions that were already in place. As a result. In contrast. we ﬁlter out the solutions that do not enable the organization to achieve its desired competitive position. We then ﬁlter out the solutions that do not honor the stated constraints. You may be wondering. we like to describe the execution of the USFM using a series of ﬁlters that ﬁlter out all other solutions until only the optimal solution remains. Lastly. From there. The results of that research indicate that the best strategies and solutions resulting from the execution of traditional methods typically satisﬁed only between 5% and 15% of the targeted customer desired outcomes better than they were satisﬁed by the existing solution. Quantitative methods integral to our process were used to evaluate hundreds of concepts proposed by dozens of organizations. this process produced strategies and solutions that satisﬁed between 50% and 60% of the targeted desired outcomes better than existing solutions. It was also found that in some cases. We also tested concepts that resulted from the execution of our process. the same organizations often chose solutions that satisﬁed as many as 80% of the targeted desired outcomes better than the existing solution. of course. This concept is shown in Figure 3. to what degree would the quality of my strategies and solutions improve if I used the structure deﬁned within the USFM when formulating strategies and solutions? To answer that question we conducted studies with organizations that have used both a traditional strategy formulation method and our advanced strategy formulation process. Notice how the universe of possible solutions is reduced to the optimal so-
. it is quite simple to select the optimal solution. Using this analogy.

behavioral sciences and other non-business related disciplines. a structure that any organization can use to effectively formulate a breakthrough strategy or solution in every situation. given the constraints that had been imposed on the solution and the competitive position that was desired. This model describes a structure that
. The application of these techniques led to the discovery of a pattern that was observed in every situation in which a breakthrough strategy was created. This analogy often brings additional insight into how the USFM is executed to produce a breakthrough strategy. The pattern that was identiﬁed is described as follows: In every situation in which an organization was successful at formulating a breakthrough strategy or solution. it had searched through the universe of possible solutions in an attempt to ﬁnd the one solution that would best satisfy the largest number of important desired outcomes.3 Filtering Out the Optimal Solution
53
lution through this ﬁltering process. This structure resulted from years of research in which we applied pattern detection and modeling techniques that are often limited to physics. SUMMARY We have discovered a universal structure for strategy formulation.Structuring the Process of Strategy Formulation Figure 3. This pattern deﬁned how organizations were able to successfully formulate breakthrough strategies and solutions. The discovery of this pattern led to the creation of a universal structure for strategy formulation called the USFM.

competitive positioning data and the universe of possible solutions. Properly consider and process information brought forth by any individual. Once this discovery was made. Agree on the criteria to be used to create and evaluate potential strategies and solutions. This structure also deﬁnes the essential elements of strategy formulation. the overall objective becomes ﬁnding the solution— the variable—that will best solve the equation given the constants—desired outcomes. constraints and competitive information—that have been deﬁned in the equation. Determine what information is needed to create a breakthrough solution. so that its role and purpose is understood. as you will see. Filter out information that is not required. This mathematical analogy gives order to the elements in the equation as they are treated as either constants or variables. we knew that we had to create and master the methods that would enable us to collect the information that is essential to the formulation of breakthrough strategies—desired outcomes. Use all pertinent information to reach a conclusion. planning and decision making without generalization. The discovery of this structure provides a framework from which an organization can successfully formulate breakthrough strategies and solutions using OutcomeBased Logic. We set out to create and master these methods. 2.
This structure also made it possible to deﬁne the essential elements of strategy formulation—desired outcomes. 7. 5. deletions or oversimpliﬁcation. When using this mathematical framework. The USFM brings structure to the world of strategy formulation. Organize the information into a format that is suitable for processing. 4. Reach consensus using facts as the basis for agreement. led to several other very important discoveries.54
Business Strategy Formulation
addresses the complexity of strategy formulation. constraints. 8. Each of these elements must be considered when formulating a breakthrough strategy or solution. These efforts. 3. 6. We imposed a mathematical framework on the USFM to explain how the model is executed. Organize information in a meaningful way.
. The structure allows an organization to:
1. constraints and competitive data.

they could not agree on which were most important. We found that their conﬂicting views were often dependent on which customers they had talked to and were shaped by their personal experiences. We have established that organizations often lack the structure. Correcting these misconceptions is an important step in understanding the science of strategy formulation. Organizations have often used ineffective methods to help them understand and prioritize what their customers value. information and the processing power that is required to formulate breakthrough strategies and solutions. we found that managers engaged in the process of strategy formulation rarely agreed on what their customers valued.Chapter 4
Desired Outcomes: Redeﬁning the Concept of ‘‘Requirements’’
In his book titled Managing Customer Value (1994) Bradley Gale writes. let us quickly review the ideas and concepts that have set the stage for this next important discovery. Before we attack what is arguably the root cause of failure in most strategy formulation and planning processes. Correcting these misconceptions will forever change the way you think about customer requirements and the role they play in the formulation of breakthrough strategies and solutions. We have demonstrated that the inherent use of Solution-Based Logic undermines the effective execution of most strategy formulation proc-
. For example. you may believe that customers do not know what they want or that customer requirements change quickly over time. ‘‘If managers can’t agree among themselves about the customers’ desires. then it’s unlikely they can achieve rapid progress toward fulﬁlling those desires. many misconceptions regarding the concept of customer requirements have been propagated throughout the years. We also found that even when managers did agree that certain customer requirements were important. As a result.’’ While using pattern detection techniques to study the process of strategy formulation. intuition and biases.

56
Business Strategy Formulation
Figure 4. once again. competitive positioning data and solutions.
. As a result. Organizations have long recognized the importance of understanding what their customers value. Despite this fact. companies and consultants have developed dozens of techniques that are aimed at capturing customer requirements. Because desired outcomes come from customers. the optimal solution must satisfy many important desired outcomes. a model that brings structure to the world of strategy formulation.1 Desired Outcomes in the Universal Strategy Formulation Model
esses. often preclude the discovery of the optimal solution. the types of information that are required to successfully execute the USFM. The next important step in unveiling this advanced strategy formulation process is to introduce the concept of desired outcomes. as shown in Figure 4.’’ We will show that desired outcomes are unique and should not be confused with other types of requirements. Desired outcomes are incorporated into the USFM. The ﬁgure indicates. that in any situation. This structure also deﬁnes the essential elements of strategy formulation. constraints. We have introduced the Universal Strategy Formulation Model (USFM). The discovery of this structure provides a framework from which an organization can successfully formulate breakthrough strategies and solutions. many people want to conveniently classify them as customer ‘‘requirements. the methods used by most organizations today to gather customer requirements are ineffective at uncovering the customers’ desired outcomes and. as we shall demonstrate.1. We have introduced an alternative high-level thinking strategy called Outcome-Based Logic that transforms the way organizations approach the process of strategy formulation. This information includes customer desired outcomes.

This was particularly intriguing because the research also showed that the same executives were very unsatisﬁed with their organization’s ability to deﬁne the right products and services. It is interesting to note that many organizations are oblivious to the fact that they do not know what their customers value. if organizations really understand what their customers value. We quantiﬁed this fact in 1995 when we conducted 270 interviews with executives around the United States. We will demonstrate that the methods typically used by businesses to capture customer requirements are the root cause of failure of most strategy formulation and planning processes around the world today. We will also explain the reasons why desired outcomes are often left out of strategy formulation and planning processes and how this prevents the formulation of breakthrough strategies. ambiguous statements? Did they go off on tangents. identify new market opportunities and select the best strategic direction. was a critical step in building the future of strategy formulation. many organizations are convinced that since they talk to their customers they must understand their customers’ requirements. offering requirements on a multitude of subjects? Did their requirements conﬂict? Did they talk in terms of solutions? Did they give you all of their requirements? Did they respond with desired outcomes? Many difﬁculties can arise when attempting to capture customer requirements. then why are they struggling with these other closely related issues? Is it possible that many organizations believe they understand what their customers’ value when in fact they do not? What is behind this paradox? In this chapter we will describe the inefﬁciencies of traditional requirements gathering methods and explain what is behind this requirement’s paradox. In fact. a unique form of requirement. Ask yourself the following questions. an inability to effectively capture desired outcomes is the reason why most businesses fail in their quest to formulate breakthrough strategies and solutions.
THE REALITIES OF ‘‘REQUIREMENTS’’ GATHERING Have you ever had the experience of gathering requirements from a customer or a group of customers? What happened when you asked them for their requirements? How did they respond? Did they give you vague. The obvious question was.Redeﬁning the Concept of ‘‘Requirements’’
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In fact. It will become apparent that the discovery of desired outcomes. target the most attractive segments. The results showed that 71% of executives were very satisﬁed with their organization’s ability to understand their customers’ requirements. We will then show that incorporating desired outcomes into the strategy formulation process is a prerequisite for the formulation of breakthrough strategies and solutions. When gathering customer requirements:
.

Based on over 1. comfortable.000 interviews. What they may not know is that customers. 3. vague statements or. we have discovered that when asked for requirements. inhibits the formulation of breakthrough strategies and solutions.000 interviews conducted over the past seven years. What types of information do you end up capturing? 4. A solution. the left side of the model. A requirement is commonly deﬁned as something that is wanted or needed. A desired outcome is treated as a constant. when asked for their requirements.58
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1. When attempting to formulate breakthrough strategies and solutions. Desired Outcomes: A desired outcome is a statement that describes an important beneﬁt that an individual would like to receive from the strategy or solution that is to be implemented. 2. Solutions: Solutions are the means by which desired outcomes will be achieved. vague statement and a desired outcome all describe something that is wanted or needed.
It must be noted that from a technical perspective.
1. must be free from solutions and. when asked for their requirements. when asked for their requirements. therefore. as we will demonstrate. individuals will usually respond with one of three types of information. we have determined that individuals. Individuals. Vague statements may also be partial solutions or partial desired outcomes. they will respond with desired outcomes. as it means different things to different people. They typically do not discriminate between the types of information they are receiving. often respond with different types of information—most of which precludes an organization from understanding what its customers truly value and. will respond with desired outcomes less than 10% of the time. They end up using whatever information they get to assist in the formulation of their strategies and solutions. it is im-
. They will usually respond with solutions. a requirement could be a solution. durable and reliable are all commonly used words that form vague statements. sometimes. but desired outcomes and solutions play two very different roles in the optimization of strategies. Based on over 1. A solution is a feature. is stable over time. a vague statement or a desired outcome. Let’s proﬁle each of these types of information in more detail. when asked for their requirements. mechanism or technology that delivers value and is usually tangible or physical in nature. Individuals. Vague Statements: A vague statement is a word or phrase that can mean different things to different people. Easy-to-use. will respond with vague statements between 20% and 30% of the time. A solution is treated as a variable in the USFM and belongs in the universe of possible solutions. How do you end up using the information you obtain?
We have found that many organizations simply try to capture any statement that describes what is wanted or needed. will respond with solutions between 60% and 80% of the time. What types of information are you trying to capture? 2. How do you plan to use the information? 3. The word ‘‘requirement’’ is a vague statement itself.

So what are the ramiﬁcations of individuals applying Solution-Based Logic when stating their requirements? When an organization interviews people in an attempt to obtain the information required for the right side of the USFM (desired outcomes) up to 80% of the time they are obtaining information that should be put on the left side of the model—solutions. Many requirements gathering sessions are not initiated with the intent of capturing desired outcomes. Now this poses an interesting problem. The objective of executing the USFM is to ﬁnd the solution that will satisfy many important desired outcomes. focus on solutions and respond with solutions when they are asked for their requirements. then from whom will it capture the customers’ desired outcomes? We have discovered that when organizations capture solutions from customers. because customers are typically trying to help you solve a problem. an organization engages in conversation with a customer without knowing what types of information they are looking for and without knowing the difference between solutions and desired outcomes. The next several sections describe. we have found that most people think in terms of solutions. In order to effectively execute the USFM. Solutions that are captured from customers. what happens when solutions and vague statements are accepted as requirements. in detail. while dealing with desired outcomes is unnatural. This type of response is common. not their requested solutions. quite often the person who is responsible for capturing the customers’ requirements is also focused on obtaining solutions. or anybody else. organizations needed to capture their desired outcomes. they often simply accept those solutions as customer requirements and do not capture desired outcomes
. because they do not know what types of information they should be looking for. ACCEPTING SOLUTIONS AS REQUIREMENTS Because most people intuitively use the high-level thinking strategy that we deﬁned as Solution-Based Logic. one must uncover the customers’ desired outcomes and place them as constants. Once the USFM was discovered. Typically. dealing with solutions is natural. the individuals involved in the process instinctively talk about what is most natural— solutions. As a result. To make matters worse. To most people.Redeﬁning the Concept of ‘‘Requirements’’
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perative to be able to distinguish between the types of information that are captured from customers. planning and decisionmaking processes today. It will become apparent that accepting solutions and vague statements as requirements is the root cause of inefﬁciency and failure in most strategy formulation. on the right side of the equation. If an organization is capturing solutions from customers. are to be treated as variables and placed on the left side of the equation. it became clear to us that when talking to customers.

Organizations often fail to capture their customers’ desired outcomes and end up with lists of solutions that spark debate and drive the execution of Solution-Based Logic. Prior to working with us. a major computer manufacturer had asked several company employees. plan or decision without knowing all the desired outcomes that are to be achieved! It happens all the time. They want to be customer driven and responsive to the needs of their customers. product and operating strategies. That’s right. This precludes the discovery of breakthrough solutions and results in ineffective strategies. organizations often fail to capture the customers’ desired outcomes altogether. What happens in your organization? Do you search out speciﬁc information from your customers? Do you discriminate between solutions and desired outcomes when capturing customer requirements? Do you capture mostly solutions? Do you accept them as your customers’ requirements? Do you attempt to capture your customers’ desired outcomes if you ﬁrst capture solutions? Many organizations are satisﬁed to capture solutions and. A typical scenario is as follows: An organization sponsors market research to uncover what customers value.60
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at all. to gather requirements from their customers. a tape back-up. deﬁne plans and make complex decisions. They are often unknowingly replaced with solutions. It is often the case that both the interviewer and the participants do not know the difference between desired outcomes and
. As a result of this phenomena. consider the approach used in the past by one of our clients. As a result of this phenomena. They then realized that they had routinely accepted solutions as requirements and consistently failed to capture desired outcomes from its customers. data encryption. a highspeed hard disk and dozens of other product features. They were prepared to move forward without knowing their customers’ desired outcomes. They later admitted that they did not know what types of information they should be capturing from customers and felt content in capturing their requested solutions. the participants are asked a variety of questions. stop short of capturing desired outcomes. They conducted customer interviews and concluded the assignment with a list of customer requirements. The objective was to capture requirements on a speciﬁc type of data processing device. organizations often fail to include a complete and accurate set of customer desired outcomes in the processes they use to formulate their company. This sounds hard to believe. The requirements they collected were a list of solutions that included items such as hot-swap cards. Desired outcomes are often partially or completely left out of processes designed to formulate strategies. Organizations often use these solutions as a guide in driving the formulation of their plans and strategies. knowingly or unknowingly. As an example of this phenomena. an internal modem. and an external consultant. The list contained only solutions. Imagine contemplating a strategy. This is a very common occurrence. As part of the research activity. but it is true.

The interviewer. because the solution that was accepted as a requirement has already been assumed as a constant in the equation (i. Those interviewed may not be aware that a 100MB ﬂoppy drive provides much better back-up capability than a tape drive in many situations. The reality is. let’s say that a computer manufacturer interviews users and is told that a tape back-up is required in future systems. For example. A competitor. in fact. Upon hearing and seeing the solutions coming from the participants. who captures desired outcomes and is not constrained by the tape backup solution. The company providing the requested solution becomes frustrated. the solutions are often accepted as the customers’ actual desired outcomes. competitors are already offering better solutions—solutions that the customers hadn’t requested or even thought of. that the participants are stating solutions that they believe will best satisfy their desired outcomes. the request must be honored. Failing to discriminate between solutions and desired outcomes is the most common mistake made in requirements gathering. This confusion is the cause of the requirements’ paradox. As a result.Redeﬁning the Concept of ‘‘Requirements’’
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solutions. not captured. they would provide them with a tape back-up. it does not. It is important to understand the difference between desired outcomes and solutions and the role they play in the process of strategy formulation. Organizations believe they know what their customers value when. because it doesn’t know where it went wrong. If the manufacturer listens to their customers’ requirements as stated. and it precludes other solutions from emerging. Confusion and inefﬁciency will often result when solutions are accepted as desired outcomes. When a single solution is accepted as a desired outcome.e. The results of the interactions are usually statements. This may better satisfy the customers’ desired outcome to minimize the time it takes to back-up important information. which describe what the participants want. after all. may decide to include a 100MB ﬂoppy drive in their offering. in fact. Their actual desired outcomes are often left unstated and are. It only knows what solutions customers are asking for at that point in time. who may be following a planned agenda. it will be part of the overall solution). it was listening to its customers. therefore. they only know their customers’ requirements in the form of solutions.
The real problem arises. the universe of possible solutions contracts. Alternative solutions are eliminated from consideration. not the desired outcomes they are trying to achieve in the future. Organizations often react by delivering the solutions that are requested by customers. because the organization now believes it knows what its customers value. they may end up with a solution that users ﬁnd much more attractive. Accepting a solution as a desired outcome has the same effect as imposing a constraint on the solution. however. in the form of solutions. Accepting a solution as a requirement limits
. Once they are delivered.. when. and it is input into the USFM as a desired outcome. is often content to have the participants interact and respond to the predeﬁned questions.

As a result. the problem becomes magniﬁed. This is only a partial execution of the USFM and results in less than optimal solutions. If many solutions are entered into the strategy formulation or planning process as desired outcomes. following the patterns associated with Solution-Based Logic. because their basis for agreement. This often leads to the debate. one must
. The potential solution becomes highly constrained. As a result.62
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Figure 4. negotiation and compromise that are part of most strategy formulation and planning processes. is missing. a sub-optimal solution is likely. the degree to which the proposed strategies and solutions satisfy those outcomes cannot be determined. strategies and solutions are evaluated for their ability to meet constraints and to achieve what can only be a poorly deﬁned competitive position. desired outcomes. they become defensive and combative. People disagree over solutions.2 Partial Execution of the Universal Strategy Formulation Model
the chances of formulating a breakthrough strategy or solution. As a result of executing a strategy formulation process without effectively considering the customers’ desired outcomes. because they prevent the consideration of other solutions. This partial execution of the USFM is illustrated in Figure 4. These constraints are often strongly debated. When this occurs.2. It is important to remember that to effectively execute the USFM. Focus is often maintained only on how well the alternative solutions honor constraints and enable the achievement of the desired competitive position. Our experiences in many Fortune 500 companies indicate that this pattern is typically followed when organizations take part in strategy formulation activities.

An organization must understand the customers’ desired outcomes before it can formulate strategies and solutions that will effectively satisfy those outcomes. plans and complex decisions? Analyze your personal experiences gathering requirements. It forces people to be defensive and argue about solutions. Without desired outcomes. This makes it difﬁcult. many organizations attempt to formulate strategies and solutions without having a clear knowledge of the desired outcomes to be achieved. do you typically have a clear knowledge of the desired outcomes that are to be achieved when contemplating strategies. the objective is to create or ﬁnd solutions that will satisfy desired outcomes. Despite this fact. Have you ever attempted to capture requirements? What types of information were you trying to capture? Did you end up with solutions? Did you discriminate between solutions and desired outcomes? You may be thinking. It forces and supports the use of Solution-Based Logic. must be placed on the left side of the equation and treated as variables. how could this inability to discriminate between solutions and desired outcomes be the cause of such inefﬁciency in formulating strategies and solutions?’’ If you cannot get the customers’ desired outcomes from the customer. customer requirements are deﬁned as ‘‘the beneﬁts and features of products that customers would like to buy. to deﬁne the criteria by which to create and evaluate solutions and limits the possibility of creating the optimal solution. as deﬁned in Value Migration. or anybody else. It may be obvious that the partial execution of this model will not produce the optimal solution. as constants.Redeﬁning the Concept of ‘‘Requirements’’
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uncover the customers’ desired outcomes and place them. ‘‘This subtle difference seems so trivial. include
. Ask yourself.’’ We now know that beneﬁts are synonymous with desired outcomes and that features are synonymous with solutions. it is difﬁcult for many to see the difference between using solutions and desired outcomes when contemplating strategies. They often fail to discriminate between solutions and desired outcomes and rarely know what types of information to capture from customers. in Adrian Slywotzky’s book titled Value Migration (1996). Many well-known academics and strategists fail to discriminate between desired outcomes and solutions when discussing their theories on strategy formulation. Customer requirements then. on the right side of the equation Solutions that are captured from customers. or impossible. plans and decisions. A focus on desired outcomes is counter-intuitive. For example. then you are forced to use the information they give you (solutions) as a basis for decision making. After all. an organization is lacking the most important criteria by which to evaluate the potential of a proposed strategy or solution. Since most people intuitively use Solution-Based Logic.

1. following a similar model as Kano. this model is built around the fact that customers talk about requirements in the form of solutions. Kano explained how customer requirements all become basic expectations over time as the initially unknown requirements.
. He. Consider the model that was created by Dr. which has become well accepted among product development consultants and individuals who utilize and teach Quality Function Deployment or QFD. He too does not discriminate between solutions and desired outcomes when talking about customer requirements. Dr. As a third example.64
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Table 4. This model clearly shows that Dr. They must both be captured and classiﬁed appropriately to successfully formulate breakthrough strategies and solutions. Dr. A clear distinction is essential to effectively formulate a breakthrough strategy or solution. Kano presented a paper titled ‘‘Attractive Quality and Must-Be Quality’’ at the 12th Annual Nippon Quality Conference in 1982. Bradley Gale shows how he aligns his ‘‘attribute life cycle stages’’ to the Kano Model. like Kano. a professor at Tokyo Rika University. assumes that customer requirements are solutions. In fact. Kano developed the Model of Quality. He shows that requirements are ‘‘attributes’’—features or solutions—with a life cycle that begins with a latent attribute and ends with a basic attribute. Solutions and desired outcomes are two distinctly different pieces of information. The use of this model has made it difﬁcult for those who use QFD to apply it effectively as a product planning process. solutions. even though the roles of solutions and desired outcomes in the strategy formulation process are distinctly different. Many people make the same mistake. Dr. become requested by customers and eventually expected by customers as all competitors offer the same solutions or features. This lack of discrimination is common. in his book Managing Customer Value (1994). Kano refers to customer requirements as solutions.1 Differences Between Solutions and Desired Outcomes
both desired outcomes and solutions—no discrimination is made between the two. Recognizing the difference may require a transformation in logic. Several characteristics that help to discriminate between solutions and desired outcomes are listed in Table 4. In this paper. Noriaki Kano.

As an example. As stated earlier. rather than saying. Accepting vague statements as requirements will lead to confusion. individuals will respond with vague words or statements between 20% and 30% of the time. when asked for their requirements. Treating a vague word or statement as a desired outcome and using it to execute a strategy formulation or planning process will inhibit the creation of the optimal solution. To eliminate this problem.’’ Easy is a commonly used word that creates a vague statement.Redeﬁning the Concept of ‘‘Requirements’’
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ACCEPTING VAGUE STATEMENTS AS REQUIREMENTS When asked for their requirements. and implement a solution that will enable the user to hold the package steady while they open it. If a customer states they want a product to be reliable. assume that an organization accepted the statement.’’ or ‘‘I want to reduce the force required to open the package. Why do individuals state their requirements in the form of vague words or statements? It may be because they are trying to summarize their actual desired outcomes. Reliable may mean a product
. Other words and statements that are considered vague include:
Reliable High-quality Comfortable Cost-effective Durable Advanced Technology Efﬁcient
Each of these terms and statements mean different things to different people. they are certainly less likely to be satisﬁed. the customers’ actual desired outcomes are left uncovered. once again. interpret it in their own way. ‘‘I want to minimize the effort required to locate the opening mechanism. As an example. ‘‘I want the package to be easy to open. all describing different aspects of what it would take to make a speciﬁc product easy to use. When this statement is passed along to the design team.’’ an individual may say ‘‘I want the package to be easy to open. vague words must not be accepted in the description of a desired outcome. when stating their requirements on a packaging design.’’ as a desired outcome. If the actual desired outcomes are not known. A well-stated requirement must be free from words that have more than one meaning. but it would not satisfy the two desired outcomes that were stated above. the debate will begin—‘‘what do they mean by easy to open?’’ They could debate amongst themselves as to what this means. In one consulting project. individuals often respond with vague words or statements that can be interpreted in different ways by different people. Words that have different meanings in different situations or environments must be avoided. This implemented solution may make the package easier to open. their deﬁnition of reliable must be understood. inefﬁciency and possibly failure as. 20 separate desired outcomes were captured.

This is the amount of incremental value typically created by strategies and solutions derived through the use of traditional strategy formulation and planning methods. It may have dozens of other meanings. 5. eliminates many of the problems and inefﬁciencies associated with traditional requirements gathering methods. or affected by. 3. throughout its product life. plan or decision that is being contemplated. This method is described in Appendix A. What kind of result would you expect to get from a strategy formulation or planning process if up to 90% of the customers desired outcomes were not properly captured or considered? You could only expect to formulate strategies and solutions that satisfy between 5% and 15% of the targeted desired outcomes better than the solution they are looking to replace. when asked for their requirements. Free from solutions or any references to technology or time-dependent solutions. It is no coincidence that this is what typically happens. The processes used by organizations to capture requirements must ensure that solutions and vague statements are eliminated from requirements as they are transformed into desired outcomes. This process. which we created as we evolved this advanced strategy formulation process. it must meet several unique criteria.
A specialized requirements gathering process is used to capture desired outcomes that meet this criteria. Each desired outcome must be:
1. The meaning intended by the customer must be captured without ambiguity. 6. It may mean a product should operate. it must be desired today and it must be desired in the future. Stable over time. 2. This creates a foundation from which breakthrough solutions can be discovered. a strategy. A desired outcome is a statement made by an individual involved in. Free from speciﬁcations such as numbers or colors. meaning it had to have been desired in the past. many organizations formulate their strategies and solutions with little knowledge of their customers’ actual desired outcomes. plan or decision that describes an important beneﬁt they would like to receive from the strategy.
. without failure. Capable of being measured to ensure its satisfaction has been achieved. individuals do respond with desired outcomes about 10% of the time. 4. ACCEPTING DESIRED OUTCOMES AS REQUIREMENTS In addition to responding with solutions and vague statements.66
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should operate in extreme ranges of temperature. As a result of capturing mostly solutions and vague statements. Free from vague words that could make the outcome ambiguous. To ensure that each desired outcome is entered into the equation as a constant. Deﬁned in a statement that includes what is desired.

let’s pretend that it is 1975 and you are avid users of music media.2 Differences Between Solutions and Desired Outcomes for a Data Processing Device
67
To capture desired outcomes. one must be able to discriminate between a desired outcome and a solution. As I began the
. is only one way to minimize the time it takes to retrieve archived data. In fact. Solutions are focused on technology. or records as they were called.2. To clarify several other points regarding the collection of desired outcomes. for example. This is not as easy as it sounds. desired outcomes are focused on what it is the customer wants to achieve. Solutions are a means to satisfy a desired outcome at a point in time. Let’s look at a couple of examples that show the format in which desired outcomes should be captured. Think about the types of statements that you would respond with once I began asking you for your requirements. not solutions. We captured approximately 40 desired outcomes in total using the techniques described in Appendix A. is the root cause of many problems encountered by organizations when they attempt to execute their strategy formulation and planning processes. It is important to recognize that a high-speed disk.Redeﬁning the Concept of ‘‘Requirements’’ Table 4. As you take yourself back to that unforgettable time period. We mentioned earlier that a major computer manufacturer attempted to capture customer requirements on a specialized computing device and ended up with a list of solutions. We focused on capturing desired outcomes. as mentioned earlier. pretend that I was hired by a music media manufacturer to capture your requirements on music media. Both the initial solutions that were captured by employees and the external consultant and the corresponding desired outcomes that we captured are shown in Table 4. A solution’s value is dependent on the degree to which it satisﬁes one or more desired outcomes. Note the differences between the desired outcomes and solutions. this difﬁculty. Capturing desired outcomes in the format stated above is essential to the formulation of breakthrough strategies and solutions. The desired outcomes corresponding to ﬁve of the initially stated solutions were included in the outcomes that we captured. They had subsequently asked us to obtain requirements from a similar customer sample.

Notice that the items on the left—solutions—are far less applicable today than they were in 1975. ‘‘I want a thicker record that won’t warp over time.3 Differences Between Solutions and Desired Outcomes for Music Media
interview. You may have said. They are valid today. Let’s quickly review what we have covered.3. ‘‘I want a larger record that will hold more songs. and the statements on the right reﬂect the actual desired outcomes that you were likely trying to achieve. you probably would have made statements like. we have described several important factors surrounding the concept of requirements gathering and desired outcomes. all of which included or implied solutions. We have identiﬁed that many organizations:
.’’ but it is likely that you wanted music media that would provide access to a large number of songs. What if the statements on the left were accepted as the customers’ requirements and used by the music media manufacturer to formulate their product strategies? If an organization made a larger or thicker record as their customers had asked for. Notice that the statements on the left reﬂect what may have been requested initially. Knowing that I could not accept solutions as requirements. They would have ignored technologies such as the compact disc that promised to deliver more value—technologies that ultimately proved to deliver vastly improved versions of music media.’’ Let’s assume that I captured the ﬁrst ﬁve statements that you made. You may have said. ‘‘I want a larger record that will hold more songs. are stable over time. I also used the methods we created to transform these statements into desired outcomes. the desired outcomes. where would they be today? They would be out of business. Organizations that are focused on solutions often miss major market opportunities and become the dinosaurs of the industry.68
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Table 4.’’ or ‘‘I want a thicker record that won’t warp over time. you may have initially said. Thus far. you provided me with not only the list of ﬁve initially proposed solutions.’’ but it is likely that you wanted music media that would play without distortion over time. Notice that the statements on the right. they were valid in 1975. For example.’’ but it is likely that you wanted music media that would reproduce the music experience as if it were live. but also with a list of ﬁve desired outcomes that corresponded to those solutions. ‘‘I want stereo sound. After some additional questioning. and they will be valid into the future. The captured solutions and desired outcomes are shown in Table 4.

when gathering requirements. 2. 3. you may be wondering. if not thousands. We have heard these statements hundreds. and/or 2. Knowingly or unknowingly accept solutions as requirements. but they do not. it is important to point out one very important discovery that we made regarding the practice of gathering desired outcomes. Desired outcomes can be captured from individuals once the extraction of desired outcomes becomes a priority. Customers do not know what they want.
We have also demonstrated that:
1. Desired outcomes are one of the essential elements of strategy formulation. Do not seek to capture speciﬁc types of information from customers and use whatever information they get to assist in their strategy formulation processes. Customer requirements change quickly over time. statistically speaking. Although these questions are addressed in more detail in Appendix A. medium and large businesses across dozens of industries around the world. Fail to formulate breakthrough strategies and solutions. We found that there are a ﬁnite number of desired outcomes on any subject and that. This fact sets the stage for other important discoveries that will be introduced as we continue to build the future of strategy formulation. over 96% of those desired outcomes can be captured using the techniques described in Appendix A. Fail to discriminate between desired outcomes and solutions.Redeﬁning the Concept of ‘‘Requirements’’
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1. 4.
. of times in small. For example.
There may be several other important questions on your mind that have not yet been addressed. many individuals assume that desired outcomes have the same characteristics. 3. This discovery is important in that we can be certain that we know today virtually all the desired outcomes that will potentially be considered important in the future. how do you know you have captured all the desired outcomes? Or do new desired outcomes come about over time? Because solutions are not ﬁnite in number and new solutions can become available over time. REQUIREMENTS-GATHERING MYTHS There is a good chance that you have heard a co-worker or a manager make one of the following two statements. 2. Many individuals across all levels of management believe that:
1. Solutions and desired outcomes play distinctly different roles in the execution of an effective strategy formulation process.

1995 issue of Fortune which is titled. many companies may be relying on the inputs of untrained. Placing the responsibility of creating new solutions and strategies in the hands of the customer is a risky proposition. Federal Express and CNN. to name a few—reads more like a hall of fame of business innovation.’’ He goes on to say. engineers or strategists. They do know. They do know that they want to minimize the time it takes to send important documents to other locations
. It may cause you to create new offerings that are safe and bland. It is because they may not know how to best achieve what they want. plates. This. ‘‘Ignore Your Customers. The best solutions often lie in the creative minds of company employees and other trained experts. They may not know they want a microwave oven.70
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It has been established that when most organizations are gathering requirements. but why should they? This is not their responsibility. as customers can only request solutions of which they are aware. with certainty.’’ As Justin Martin suggests. and utensils that must be cleaned after a meal is prepared. by accepting solutions as requirements. Soliciting and accepting their solutions as requirements. They may not be aware of emerging technologies and pending breakthroughs. Customers may not be able to identify a breakthrough technology or know which solution will be optimal. engineers and strategists. what desired outcomes they want to achieve. People who believe these statements to be true routinely accept solutions as requirements. especially if they are not sure what a fax machine can do. Myth 1: ‘‘Customers Do Not Know What They Want’’ This myth is perpetuated by articles such as the one published in the May 1. however. unqualiﬁed individuals—customers—to shape their company’s future. they are actually gathering solutions. VCR’s. organizations that provide solutions suggested by their customers often do ﬁnd themselves chasing the competition. however. Most customers are not technologists. Just imagine. The roster of items that met with initial customer naysaying—fax machines. ‘‘Ignore your customers. In spite of their inability to effectively perform their externally imposed roles as designers. we have been able to disprove these two myths surrounding customers and their requirements.’’ In this article. Justin Martin states that listening to customers can ‘‘actually lead you astray. puts this responsibility in their hands. that they want to minimize the time it takes to prepare a meal and reduce the number of pans. Because we recognize the importance of discriminating between solutions and desired outcomes when formulating strategies. especially if they don’t even know what a microwave is. ‘‘Customers can be wildly un-imaginative. not desired outcomes. customers do know. in essence. They may not know they want a fax machine.’’ He suggests that you should. They will thank you for it in the end. is not because customers do not know what they want. Solutions suggested by customers tend to be technologically challenged.

pricing and marketing strategies. Generally speaking. and from internal customers we have captured desired outcomes on many operating. After all. as long as music media has been around. storage devices. strategists and management determine which solutions will best satisfy those desired outcomes. switching equipment. we have collected desired outcomes on dozens of companies. It is the responsibility of the organization to capture their customers’ desired outcomes and then let their engineers. water ﬁltration equipment. 2. We have captured desired outcomes on improving the product development. consumer products. products and services. For example. Each of these interviews has produced the customers’ desired outcomes. from external customers. in its proper format. Desired outcomes. In some industries. Resist damage during normal use. medical devices.000 interviews involving these and other subject matters. mailing systems. technology is moving so fast that new solutions are available every few months. but they do know what desired outcomes they want to achieve. Myth 2: ‘‘Customer Requirements Change Quickly Over Time’’ Solutions—not desired outcomes—change quickly over time as new technologies and processes are developed and commercialized. This stability is a fundamental characteristic of a desired outcome. was desired 10 years ago. manufacturing and ordering processes and on formulating distribution.
. individuals have wanted music media that would:
1. 3. and will be desired 10 years from now. mobile radios. are stable over time. Customers may not know what solutions they want. banking services.Redeﬁning the Concept of ‘‘Requirements’’
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and minimize the time required to receive important documents from other locations. Since 1991. aircraft instrumentation. we have conducted over 1. on the other hand. A desired outcome. energy sources. Play without distortion over time. Provide access to a large number of songs. technology centers. technologists. portable radios. the trained experts will more likely come up with a breakthrough solution. pacing systems. Creating the solutions that satisfy the customers’ desired outcomes is the responsibility of those who are attempting to create value. Customers do know what desired outcomes they want to achieve. We have conﬁrmed this fact time and time again as we have captured desired outcomes on composite materials. support and management processes. surgical systems and other products and services that individuals use or desire to use. such as computers and communications. is desired today.

they are stable over time. but the solutions have changed over time as new technologies have been developed.4 Satisfying Stable Outcomes over Time
4. an organization has the means
. 5. desired outcomes on music media.4 illustrates how solutions that satisfy an individual’s desire to ‘‘quickly communicate with others that are in a different physical location’’ have changed over time. The ramiﬁcations of this reality are far reaching. Reproduce the music experience as if it were live. and will continue to be. when using the USFM with desired outcomes that are stable over time. even decades. For example.72
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Table 4. but the solutions have changed over time as new technologies have been developed and introduced. As another example. As a result of studying the requirements gathering process. Again. Notice that the desired outcome has remained the same. Table 4. in fact. What does change over time is the level of importance that individuals place on each outcome and the degree to which the outcome is perceived to be satisﬁed. we have discovered and veriﬁed that solutions change over time and that desired outcomes are stable over time. The methods used to determine which desired outcomes are most important are described in Appendix A. Require minimal storage space.
Were these desired outcomes on music media valid 20 years ago? Are they valid today? Will they be valid for the foreseeable future? These have been.5. As a third example. notice how solutions that satisfy an individual’s desire to ‘‘participate in a business meeting in a distant location’’ have changed over time. the desired outcome has remained the same. they are stable over many years. shown in Table 4.

A set of desired outcomes. a product or service strategy or strategies that are designed to improve a company’s operating. By deﬁnition. The desired outcomes for a given situation or mission can be captured from external and internal customers who are involved in or affected by that mission. 5. 4. 2. They describe the customers’ perception of value in the past. This ﬁnite number of desired outcomes often falls between 50 and 300 outcomes for a given mission
.5 Satisfying Stable Outcomes over Time
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to know today which strategies and solutions will deliver the most value in the future. speciﬁcations and vague statements. now and in the future. Desired outcomes are free from solutions. will include over 96% of all the outcomes that are desired by the customers affected by the mission. Desired outcomes are stable over time. As you will see. properly captured. but it also ensures that they will select and pursue only those strategies and solutions that deliver breakthrough results. support or management processes. 3.
1. desired outcomes are statements that describe what outcomes customers want to achieve given a speciﬁed situation or mission. as this mechanism not only enables an organization to accurately predict the potential of alternative strategies and solutions. The mission may relate to formulating a company strategy. this is an important discovery.
TRANSFORMING THE PROCESS OF STRATEGY FORMULATION WITH DESIRED OUTCOMES Let’s review the characteristics of desired outcomes and the role that desired outcomes play in the process of strategy formulation.Redeﬁning the Concept of ‘‘Requirements’’ Table 4.

it is possible to know today which desired outcomes people will value in the future. and all designers share the same set of desired outcomes on the process of product development.74
Business Strategy Formulation with 25 to 50 desired outcomes coming from each customer type that is considered in the mission. It can anticipate future opportunities and start today to prepare to deliver the optimal solutions of the future. This desired outcome will continue to be a desired outcome on the process of surgery well into the future. Once desired outcomes are captured for a speciﬁc mission. it is important to get a glimpse of that role. 4. Since desired outcomes are stable over time.
The role that desired outcomes play in the process of strategy formulation will be fully explained throughout the remainder of this book.
1. In other words. strategy or solution. Although individuals involved in a speciﬁc mission may share a universal set of desired outcomes. The degree to which desired outcomes are satisﬁed will change over time as new ideas and solutions are formulated and implemented. just imagine each of the following statements are true. For now. and consider the ramiﬁcations that these truths may have on your ability to create breakthrough strategies and solutions. Value can be created by formulating and providing solutions that increase an individual’s perceived level of satisfaction on one or more desired outcomes. Knowing the customer’s future desired outcomes makes it possible to determine today which ideas. 6. 5. and their levels of satisfaction differ as well. This determination can be made in advance of the actual development or implementation of a proposed idea. 2. However. ‘‘preventing the injury of healthy tissue’’ has been a desired outcome on the process of surgery since surgery was invented. This can be accomplished using statistically valid market research. How could
. An organization can eliminate its participation in non-value producing activities. As an example. different desired outcomes are more important to some individuals than to others.
With this knowledge. Opportunity can be discovered by quantifying which desired outcomes are most important and least satisﬁed to an individual. planning and decision-making activities. 3. for example. many individuals will differ in the importance they place on each desired outcome and the degree to which they perceive each outcome to be satisﬁed. Think of the impact that the use of desired outcomes can have on your company’s strategy formulation. strategies and solutions will be valued in the future. group of individuals or a total population. an organization is able to focus its resources on only the activities that it knows will successfully create value for the organization and its customers. they form a universal set of 50 to 300 desired outcomes. This is what makes every situation different and explains why one solution will not ﬁt all situations. This means. even though we have not fully deﬁned the foundation upon which that role is built. that all surgeons share the same set of desired outcomes on improving the process of surgery. 7.

This fact is the root cause of failure in many strategy formulation and planning processes around the world today. they provide a foundation from which an organization can deﬁne its desired competitive position. When asked for requirements. Before this can change. This is one of the main reasons that organizations fail to consistently create breakthrough strategies and solutions. organizations typically exclude up to 90% of the relevant desired outcomes from their strategy formulation and planning processes. The problem arises when organizations accept solutions as requirements rather than desired outcomes. have not mastered the techniques that are required to capture their customers’ desired outcomes. and they will respond with desired outcomes less than 10% of the time. Quite often the people who are responsible for capturing the customers’ requirements do not know what types of information they should
. Without this information. SUMMARY Organizations have long recognized the importance of understanding what their customers value. In spite of their importance. an organization must know how to discriminate between desired outcomes and solutions. As the USFM illustrates. organizations will likely fail in their efforts to create breakthrough strategies and solutions. They will respond with vague statements between 20% and 30% of the time. because they are capable of uncovering their customers’ desired outcomes. increase your proﬁts and reduce your expenses? The ramiﬁcations of being able to capture and use desired outcomes as you execute the USFM are dramatic and far-reaching. customers will respond with solutions between 60% and 80% of the time.Redeﬁning the Concept of ‘‘Requirements’’
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this knowledge impact your company’s ability to create value for the organization and others? How would this impact your ability to grow your business. Many companies. What many organizations do not realize is that customers unintentionally make it difﬁcult for anyone to capture their desired outcomes. They are subsequently effective at ﬁnding the solutions that best satisfy those desired outcomes. They are often unknowingly supplanted with solutions. They must possess the skills that are required to capture desired outcomes that are both free from solutions and stable over time. It is the root cause of inefﬁciency in most strategy formulation processes. successful organizations understand what their customers value. And as you will see. it is possible to know today how much value a particular solution will deliver in the future. however. They form the basis for creating customer-driven strategies. They are integral to the formulation of breakthrough strategies and solutions. They deﬁne the customers perception of value. Desired outcomes are one of the essential elements of strategy formulation. With the use of desired outcomes. The organizations that possess this skill will undoubtedly enjoy a competitive advantage. This makes it possible for an organization to anticipate future opportunities and to make the trade-off and investment decisions that will strengthen its future strategic position.

Customers typically express between 25 and 50 desired outcomes on any subject related to the formulation of a company strategy. In fact. Once an organization can distinguish between desired outcomes and solutions. Disproving these myths has played an important role in evolving the process of strategy formulation. many organizations engage in conversation with a customer without knowing the difference between desired outcomes and solutions. We have discovered that when all the desired outcomes have been captured on a speciﬁc subject. Customers do know what they want and can express what they want in the form of desired outcomes. In the end. This series of events drives the dynamics that are associated with the application of Solution-Based Logic. they form a universal set of desired outcomes. and desired outcomes are often left out of the strategy formulation process altogether. the individuals involved in the process—often driven by Solution-Based Logic—instinctively talk about what comes naturally. a product or service strategy or a strategy that drives an organization’s operating. Desired outcomes. These differences.76
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be looking for and routinely accept any information that describes what a customer wants or needs. the organization ends up with a list of requirements in the form of solutions. are stable over time and can be treated as constants in the USFM. Once we discovered the USFM. What differs from person to person is the importance they place on achieving each desired outcome and the degree to which they perceive each desired outcome to be satisﬁed. Using statistical principles we have proven that it is possible to capture over 96% of all the desired outcomes that exist on a speciﬁc subject of interest. determine which solution will best deliver value in each unique situation. The ability to capture desired outcomes is a prerequisite for the successful execution of the USFM. It results in the ineffective execution of the USFM and often precludes the formulation of breakthrough strategies and solutions. support or management processes. As a result. This stability lends itself to the systematic formulation of breakthrough strategies and solutions. Organizations must be able to recognize the importance of capturing desired outcomes and must be able to distinguish between desired outcomes and solutions before the methods can be mastered. Many requirements gathering sessions are not initiated with the intent of capturing desired outcomes. it will recognize that only organizations that accept solutions as requirements believe that customers do not know what they want and that requirements change quickly over time. The methods that are required to capture desired outcomes have been created. as we will see. Desired outcomes play an important role in the science of strategy formulation. unlike solutions. Their desired outcomes describe their perception of value. meaning they are the same desired outcomes that all individuals in that customer group—not just those interviewed—have on that subject of interest. we set out to create and master the methods that would enable an organization to collect the information that is essential to
. solutions.

combined with a thinking process called predictive logic. to form the basis for an advanced approach to competitive positioning.
.Redeﬁning the Concept of ‘‘Requirements’’
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the formulation of breakthrough strategies. We will now set out to demonstrate how we use desired outcomes. We have demonstrated that the methods required to capture desired outcomes have been created and mastered.

.

a breakthrough strategy. we found that breakthrough strategies and solutions invariably resulted
. can be imposed on a strategy or solution by the organization itself or by a third party. must enable an organization to achieve both a unique and valued competitive position. Michael Porter states that. managers. consultants. let’s deﬁne what we mean by the desired competitive position. The organization’s desired competitive position should be unique in that it should be different from the competitive position that is occupied by other organizations. We have established that desired outcomes can be obtained from customers and that the methods required to capture them have been created. employees. come from many sources including customers. constraints. how do we obtain the information that is needed to deﬁne the desired competitive position? Before we begin to explain how this information is captured.’’ He and other experts in the ﬁeld of strategy formulation agree that an effective strategy. As we applied pattern detection techniques to the process of strategy formulation.Chapter 5
Deﬁning the Desired Competitive Position
In his article titled ‘‘What Is Strategy?’’ (1996). It should be valued in that it should deliver value to the internal and external customers for whom the strategy is being devised. The Universal Strategy Formulation Model (USFM) includes the four essential elements of strategy formulation: desired outcomes. the desired competitive position and solutions. We have established that constraints. ‘‘Strategy is the creation of a unique and valued competitive position. technologists and others. Solutions. which often result from time. resource or capital limitations. as we have learned. but one question remains. We now know how to obtain each of these essential elements of strategy formulation. We deﬁne the desired competitive position as a unique and valued position that an organization desires to achieve relative to its competitors.

after the strategy or solution is selected. what competitive position it wants to achieve and then being able to successfully ﬁnd the strategy or solution that will enable it to achieve that desired position. they attempt to determine what competitive position they want the strategy or solution to enable them to achieve. organizations will likely end up occupying a competitive position that is neither unique nor valued. They do not have the option of modifying the solution in an attempt to occupy the position they desire. the competitive position that will be occupied is determined when the strategy or solution is selected. many organizations are forced to spend time and money marketing and advertising the strategies and solutions they have chosen in hopes of changing the customer’s perception of value. We also made one other important discovery. product or service satisﬁes the customers’ important desired outcomes. organizations are typically forced to position a strategy or solution that has already been chosen. you position the product in the mind of the prospect. The position that the organization chooses to occupy should be unique from other competitors. just so they can attempt to occupy the competitive position they desire. Many organizations have not yet made this realization and continue to use traditional approaches when deﬁning the competitive position they want to achieve.’’ It is much simpler to position a company. then an
. Then. In their book titled Positioning: The Battle for Your Mind (1993) Al Ries and Jack Trout state. That is. the ﬁrst step they typically take when deﬁning the desired competitive position is to select the strategy or solution they are going to pursue. If a strategy or solution does not satisfy important desired outcomes. Because many organizations instinctively apply Solution-Based Logic. We discovered that the consistent formulation of breakthrough strategies and solutions is dependent on an organization knowing. in advance. It is too late to proactively determine the desired competitive position. ‘‘Positioning is what you do to the mind of the prospect. This discovery is consistent with the concept of Outcome-Based Logic. When using this approach. whether it wants to occupy that position or not.80
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in the achievement of a unique and valued competitive position. Many organizations and academics refer to this common practice as positioning. This approach to competitive positioning is reactive. it is an attempt to position something that already exists. As a result. In actuality. Because the competitive position is often considered after the strategy or solution is selected. and it should deliver value to the organization and its customers. the objective is to deﬁne the competitive position the organization wants to occupy and then set out to ﬁnd the strategy or solution that will enable it to occupy that position. product or service in the mind of the customer if the company. The chosen solution effectively determines what competitive position the organization is going to occupy. When executing the USFM.

Revenue measurements. we will describe how an organization can effectively deﬁne what competitive position it wants to achieve. Quarterly earnings measurements. the information resulting from ﬁnancial and customer satisfaction measurements does not enable an organization to predict how a speciﬁc
. 2. a reactive approach to competitive positioning is rarely effective. an organization can obtain the information that is required to determine the level of success that was achieved as a result of introducing that particular strategy or solution. 5. We will explain how an organization can consistently choose a competitive position that is both unique and valued before it sets out to formulate the strategy or solution that will enable it to achieve that competitive position.
Financial measurements indicate the impact that a strategy or solution has had on the organization’s bottom line over a period of time. In this chapter. we will introduce a measurement system that redeﬁnes how an organization should measure the satisfaction of desired outcomes. Customer satisfaction studies often quantify a customer’s perceived level of satisfaction with the products and services that are offered by the organization. Market share measurements.Deﬁning the Desired Competitive Position
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organization certainly cannot expect to occupy the optimal competitive position. Customer satisfaction measurements. We will describe how we leverage the synergy between desired outcomes to effectively prioritize what criteria should be used to deﬁne the desired competitive position. As we will demonstrate. First. MEASUREMENT SYSTEMS The success of a strategy or solution is often quantiﬁed by measuring a speciﬁc set of criteria or parameters after the strategy or solution has been executed or implemented. Return on investment measurements. The data resulting from ﬁnancial and customer satisfaction measurements provides an organization with an indication as to how well it has satisﬁed the desired outcomes of its internal and external customers. 3. no matter what it tells its customers. Examples of measurements taken after a strategy or solution has been introduced include:
1. As a result of measuring these parameters. A successful organization must decide what competitive position it wants to achieve and then ﬁnd the strategy or solution that will enable it to achieve that position. Measurements of this type often give a precise account as to how well a speciﬁc strategy or solution has performed. 4. Unfortunately. We will demonstrate how the desired competitive position is tied to the satisfaction of the customers’ desired outcomes.

We must know the degree to which that satisfaction will result in the achievement of the desired competitive position. PREDICTIVE LOGIC Predictive logic is characterized by thinking about what can be done now to ensure. what types of measurements are taken and used within your organization to plan your company’s future? What types of information are used when your organization is deﬁning the competitive position it wants to occupy? It is common to take measurements that answer the question. ‘‘How did we do?’’ It is often considered counter-intuitive to take measurements that answer the questions. ‘‘To what degree is this strategy or solution going to enable us to achieve our desired competitive position?’’ To determine how a strategy or solution is going to perform before it is introduced.82
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strategy or solution will perform over the next measurement period. ‘‘How is this strategy or solution going to perform once it is introduced?’’ Or. In their book titled Outcome Management (1995). It also requires an organization to think about the degree to which it must satisfy the customers’ desired outcomes to achieve its desired competitive position. that a desired outcome
. This requires a before-the-event measurement. not what will happen. Predictive logic requires an organization to think about the impact that its actions will have on the satisfaction of the customers’ desired outcomes in the future. Using these measurements to determine if a speciﬁc strategy or solution is going to generate value in the future is very unreliable and risky as they are after-the-event measurements. Dan McArthur and Larry Womack agree that. predictive logic requires that an organization measure—before a strategy or solution is introduced—the parameters that predict the amount of value that a proposed strategy or solution will create. We must know—in advance—what desired outcomes are going to be satisﬁed and the degree to which they are going to be satisﬁed by the proposed strategy or solution. Using these measurements to measure past success is logical. an organization must think about what can be measured now to ensure.’’ Ask yourself. or predict. It is a measure of what has happened. measurements must be taken prior to the actual implementation. C. or predict.1. Some have become more sophisticated and use current performance as the measure of success and the basis of planning. The difference between a before-the-event measurement and an after-theevent measurement is shown in Figure 5. organizations often use information resulting from after-theevent measurements to plan their future. that a desired outcome will be better satisﬁed by a strategy or solution in the future. Despite this fact. Achieving these objectives requires the application of a different kind of logic. ‘‘Most companies still use past performance to measure success and to plan for the future. It should be noted that an event is deﬁned as the introduction of a speciﬁc strategy or solution. When creating a before-the-event measurement. In addition.

if an organization can measure the parameters that predict the success of a proposed strategy or solution. the use of predictive logic enables an organization to answer the question. If the number of steps that are required to operate a piece of software are reduced. then that predicts the software can be operated with less effort.1 Before-the-Event vs. After-the-Event Measurements
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will be better satisﬁed in the future. solution. service or investment going to perform?’’ After all. they can evaluate the potential success of their proposed strategies and solutions before they are even developed. As a result. what is the advantage of using predictive logic? It enables an organization to deﬁne.Deﬁning the Desired Competitive Position Figure 5. then that predicts the strategy or solution will create customer value. ‘‘How is this strategy. if the number of time consuming steps that exist in a manufacturing process are reduced. then that predicts it will take up less space. product. If a strategy or solution satisﬁes a large number of important desired outcomes. In fact. what is preventing an organization from knowing it is going to fail in advance of its introduction?’’ What criteria will be used to judge the success or failure of the strategy or solution after it is introduced? If that criteria were known in advance. then that predicts that items can be manufactured more quickly in the future. If the size of a device is reduced. the criteria that are to be used as the basis for measuring the potential success of a strategy or solution. For example. and used to evaluate the potential of
. in advance of introducing a strategy or solution. then that predicts that few competitors will be competing in that market. they can then evaluate the likely success of their proposed strategies and solutions before they are introduced. If entry into a market segment requires a large initial investment. So. The question was posed earlier: ‘‘If a solution can be classiﬁed as a failure after it is introduced or implemented.

to predict if a desired outcome will be satisﬁed and to determine the degree to which it will be satisﬁed. could its eventual failure be predicted in advance? Could the failure be avoided altogether? We now know that desired outcomes. before solutions are generated. We can obtain. It states the parameter that must be measured and controlled. The objective then. from the universe of possible solutions.84
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the concept to begin with. PREDICTIVE METRICS A predictive metric is a parameter that when measured and controlled will predict the satisfaction of a desired outcome. It can be used to formulate a breakthrough strategy or solution. This is the philosophy behind Outcome-Based Logic. it must predict
. A predictive metric is a beforethe-event measurement. it can be used as the basis by which to measure the potential value of any proposed strategy or solution. will create the most value for the organization and its customers in the future. As a result. we have created a unique before-the-event measurement. That determination can be made well before the ﬁrst development activity is taken or investment dollar is spent. We can obtain. once the criteria are captured for a speciﬁc mission. A predictive metric is a unique piece of information that is essential to the successful execution of the USFM. Since this information can be made available before a strategy or solution is conceived. This parameter is called a predictive metric. the constraints that any proposed strategy or solution must honor. an organization can ensure its activities are focused only on the strategies and solutions that will create the most value for the organization and its customers. the desired outcomes that customers want to achieve. a single predictive metric is deﬁned for each desired outcome. The customer’s desired outcomes deﬁne how they will measure the success of a strategy or solution once it is introduced. is to determine which strategies and solutions. we can obtain the information that deﬁnes an organization’s desired competitive position—before the ﬁrst solution is generated. To enable an organization to quantify the degree to which a strategy or solution will deliver value. as you will see. constraints and the desired competitive position deﬁne the criteria that are used to evaluate whether or not a breakthrough strategy or solution has been created. Also. ensuring that an organization will not waste its time and resources pursuing activities that involve suboptimal strategies and solutions. In other words. prior to the implementation of a strategy or solution. Deﬁning and using a predictive metric is often perceived as counter intuitive as it requires individuals to think in the future. It can be used to measure what outcomes will be satisﬁed and the degree to which they will be satisﬁed. before a strategy or solution is generated. When executing this model. The metric must have a strong predictive relationship with that outcome.

e. not an after-the-event indicator. cost. 9. a desired outcome may be to minimize the cost of inventory.Deﬁning the Desired Competitive Position
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the satisfaction of that outcome. If the desired outcome does not have a measurable parameter in it.’’ To predict that a device or system designed to improve the process of surgery will enable continuous. One hundred percent predictive of satisfying the desired outcome for which it was created. If the desired outcome contains a measurable parameter such as time. percent or foot-pounds. 2. in the process of conducting surgery. unobstructed vision of the ﬁeld will be satisﬁed and can be used to determine the degree to which it will be satisﬁed. So. 7. then the metric will be stated just like the desired outcome. must meet a strict set of criteria. A predictive metric. weight. Measurable before the event. unobstructed vision of the ﬁeld. foot-pounds or some other unit of measure. Stable over time. It predicts that the desired outcome for continuous. the predictive metric is simply a restatement of the outcome. when deﬁned for a speciﬁc desired outcome. high-quality or comfortable.
It should be noted that when a desired outcome is not properly deﬁned. when improving the manufacturing process. 3. As an example. 8. cost. then the outcome will be modiﬁed to include a measurable parameter such as time. will enable the surgeon to better achieve continuous. unobstructed vision of the ﬁeld. weight. a desired outcome of the surgeon is to ‘‘enable continuous. which we attempt to include where possible. 6. it becomes difﬁcult or impossible to deﬁne a predictive metric that will meet the stated criteria. The solutions that infrequently obstruct the visualization of the ﬁeld. percent. Free from solutions or any references to technology or time-dependent solutions. The methods used for capturing desired outcomes and deﬁning their corresponding predictive metrics have been precisely deﬁned to enable the
. and the metric is a method to minimize the cost of inventory. for example.g. unobstructed vision of the ﬁeld. 4. one could measure and control the number of times and total time the visualization of the ﬁeld is obstructed by any proposed solution.. The parameters that are measured predict the achievement of the desired outcome. reliable. and do so for a minimal amount of time. A predictive metric is a single statement that is:
1. Free from vague words such as easy. Capable of measuring the degree to which the desired outcome is satisﬁed. Controllable in the design of the strategy or solution. ‘‘Reducing the number of times and the total time the visualization of the ﬁeld is obstructed’’ is a predictive metric. 5. Appropriate for competitive benchmarking. This change will transform the desired outcome into a predictive metric. Descriptive of an activity that can be addressed to create value. Since the cost of inventory can be measured in dollars.

then down time would not be experienced at all—achieving the ultimate target value—and the desired outcome would be satisﬁed to the greatest possible degree. Notice that each desired outcome becomes more and more satisﬁed as its corresponding metric is driven toward its ultimate target value. 5.1 along with their corresponding predictive metrics. Notice again that each predictive metric predicts the satisfaction of its corresponding desired outcome and that each desired outcome becomes more and more satisﬁed as its corresponding metric is driven toward its ultimate target value. steps.1. Each predictive metric predicts the satisfaction of its corresponding desired outcome. if a solution were to reduce the time required to repair an unexpected failure. space or cost. who are responsible for making the decision to purchase surgical systems.2 and 5. if a solution were to reduce the number of cells that are
. For example. The desired outcomes are stated on the left and the metrics are stated on the right. For example.86
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Table 5.1 Desired Outcomes from Hospital Administrators
successful creation of breakthrough strategies and solutions. are stated in Table 5. Following are three examples of desired outcomes and their corresponding predictive metrics as shown in Tables 5. Example 2 Five desired outcomes that came from surgeons who use surgical systems are stated in Table 5. Notice that each predictive metric contains a measurable parameter such as time. then it would predict the system would experience less down time due to failure. If the repair could be made instantaneously. frequency.3. Example 1 Five desired outcomes that came from hospital administrators.2 along with their corresponding predictive metrics.

Also note that each metric predicts the satisfaction of its corresponding desired outcome. each predictive metric is created to strongly predict the satisfaction of its corresponding desired outcome. Example 3 Five desired outcomes that came from manufacturers of surgical systems are stated in Table 5. predictive metrics are used as the basis from which to deﬁne the desired competitive position. can be controlled within the design of a surgical system.Deﬁning the Desired Competitive Position Table 5. then the system that injures the smallest number of cells would be considered the best at satisfying this desired outcome. when formulating strategies and solutions. achieving the ultimate target value. however. one for each desired outcome. In most strategy formulation activities. and can be benchmarked versus a competitor when attempting to deﬁne the desired competitive position.3 along with their corresponding predictive metrics. an organization can expect to consider between 50 and 300 predictive metrics. As we will soon demonstrate. We have deﬁned a parameter (a predictive metric) that can be used to predict the satisfaction of desired outcomes. then no scaring would occur. By deﬁnition. we must explain how we determine which of the up to 300 predictive metrics will be used to deﬁne the desired competitive position. First. Notice that a measurable parameter is contained within each predictive metric. then that would predict the formation of undesirable scaring would be lessened. PRIORITIZING PREDICTIVE METRICS We have established that desired outcomes deﬁne the customer’s perception of value. If several potential surgical systems were being evaluated against this criterion. and each metric is free from solutions and stable over time.2 Desired Outcomes from Surgeons Who Use Surgical Systems
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injured when accessing the surgical site.
. If no cells were injured.

Reducing the volume of healthy cells that are contacted during the surgery not only predicts the prevention of injury to healthy tissue. may also predict. First. The second step in this prioritization process is based on the fact that a predictive metric. Their corresponding predictive metrics. This concept of synergy is important as it forms the basis by which predictive metrics are prioritized. Through this effort. that bleeding is minimized and that the formation of undesirable scaring is prevented.4. although deﬁned to predict the satisfaction of one speciﬁc desired outcome. to some degree. The desired outcomes that are most important and least satisﬁed obtain the highest priority. the customers for whom the strategy or solution is being devised or targeted are asked to quantify the importance of each desired outcome and the degree to which each outcome is currently satisﬁed.88
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Table 5. by default. This concept is grounded in the fact that the satisfaction of some desired outcomes will predict the satisfaction of other desired outcomes. Some metrics may predict the satisfaction of only one desired outcome. Simply stated. To illustrate this concept. we must establish the importance of each desired outcome. This predictive metric is said to have synergy with other desired outcomes. thus uncovering areas of opportunity. reinforce and optimize other activities. consider again the predictive metrics for the desired outcomes that came from surgeons using a surgical system. share the same priority. to some degree. it is determined which desired outcomes are most important and least satisﬁed.3 Desired Outcomes from Manufacturers of Surgical Systems
Predictive metrics are prioritized using a two-step approach. the satisfaction of one or several other desired outcomes. This is accomplished through the quantitative research methods that are deﬁned in Appendix A. In this sense. it also predicts. certain predictive metrics represent activities that complement. Some metrics may predict the satisfaction of two desired out-
. The relationships that this predictive metric has with each of these desired outcomes are shown in Table 5.

The high priority metrics effectively and efﬁciently predict the creation and delivery of value. one of the seven tools of quality.Deﬁning the Desired Competitive Position Table 5. An advanced normalized importance algorithm is then applied. The metrics that predict the satisfaction of a disproportionate number of important desired outcomes are the metrics with the most synergy. an organization can determine which predictive metrics to use to deﬁne the desired competitive position. an organization can focus on the few metrics or activities that really matter. Once the relationship between each predictive metric and each desired outcome have been established. and we know what criteria to use to deﬁne the desired competitive position. The process of determining these relationships is often referred to as synergy analysis. As a result of this prioritization. Obtaining this information can provide an organization with an enormous advantage. matrix analysis. It uses the importance and satisfaction ratings associated with each desired outcome as a basis from which to mathematically prioritize the predictive metrics. This concept is illustrated in Figure 5. it is often found that as few as 30% of the metrics often predict the satisfaction of up to 70% of the desired outcomes. They complement. We know what it takes to be competitive in that situation. in descending order.2. we know what we must measure and control to predict the efﬁcient creation and delivery of value. Simply stated. is used to assist in establishing the relationships that exist between the desired outcomes and predictive metrics. We know what criteria we should use to compare the amount of value that strategies and solutions are creating in one organization versus another. Once the predictive metrics are prioritized. the predictive metrics can be prioritized. reinforce and optimize one another. If an organization were to focus its limited resources on the
. This analysis enables an organization to determine which metrics predict the satisfaction of the largest number of important desired outcomes. They are the metrics with synergy. When predictive metrics are prioritized using this methodology. based on their level of synergy. As a result of this prioritization. A detailed explanation of the methods used to prioritize predictive metrics can be found in Appendix B.4 Types of Relationships Between a Predictive Metric and Desired Outcomes
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comes. Other metrics may predict the satisfaction of several important desired outcomes.

This is a common cause of organizational inefﬁciency.2 Leveraging the Use of Valued Information
few metrics or activities that predict the satisfaction of 70% of the desired outcomes. reinforce and optimize one another in a way that is difﬁcult for a competing organization to match? It is rare that an organization has access to such powerful metrics. the creation of a predictive metric is dependent
. Their creation is often inhibited by the use of Solution-Based Logic and after-theevent measurements. The beneﬁt of having and using this information cannot be overstated.90
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Figure 5. they could create solutions that would deliver the most value for the smallest possible investment in time and resources. Which metrics predict the delivery of value in your organization? Are they tied to the satisfaction of customer desired outcomes? Do they deﬁne the activities that will enable the organization to achieve a unique and valued competitive position? Do they deﬁne the array of interlocked activities that will provide the organization with a sustainable competitive advantage? Do they deﬁne the activities that complement. Although it predicted one important outcome. the metric that was at the center of the organization’s attention turned out to be prioritized 67th out of 120 metrics. During one consulting project. By focusing on the metrics with synergy. This information could provide those who use it with a tremendous competitive advantage. an organization can use its resources more efﬁciently to strengthen its strategic position. In addition. it did not have synergy with any other desired outcome. and other metrics predicted the satisfaction of its corresponding desired outcome.

They also identify the parameters against which a unique competitive position can be deﬁned. for example. THE DESIRED COMPETITIVE POSITION The desired competitive position that is chosen by an organization should be unique from other competitors. we know that we must be able to store at least 18 songs. As part of our assignment. Predictive metrics. deﬁne the most efﬁcient approach to the creation and delivery of customer value. We ﬁnd. if we know that Competitor 1 can store 14 songs and Competitor 2 can store 18 songs. we then set out to determine the competitive positions that are currently occupied by our top two competitors. To understand where we stand relative to our competitors. We know that a valued competitive position can only be obtained if our organization offers music media that delivers more value than the media offered by our competitors. In fact. however. when prioritized. The target values reﬂect the organization’s desired competitive position. For example.Deﬁning the Desired Competitive Position
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on an organization’s ability to capture desired outcomes that are free from solutions and stable over time. that the music media produced by Competitor 2 is capable of storing 18 songs and that the music media produced by Competitor 1 is also 3-1/2 inches in diameter. it would place us in a ‘‘me-too’’ position. and it should be valued by the organization and its customers. If we could store 32 songs. but no better. For example. we would become just like our competitor. we determine that our company’s music media is capable of storing 14 songs and that the diameter of the media is 3-1/2 inches. an organization can gain access to the information that is required to deﬁne the organization’s desired competitive position.5. because no other competitor would
. We begin this activity by establishing the competitive position our organization currently occupies along the stated metrics. To demonstrate how predictive metrics are used as the basis from which to deﬁne a unique and valued competitive position. But we must ask. These current values are shown in Table 5. They deﬁne what must be achieved to occupy a unique and valued competitive position. ‘‘Will that allow us to achieve a unique and valued competitive position?’’ No it would not. As a result. we are responsible for deﬁning what competitive position we want the company to occupy. Once these obstacles are overcome. This time. let’s refer back to the music media example. They are the metrics we will use to deﬁne our desired competitive position. we set the target values as shown in Table 5. pretend we are executives in a music media manufacturing company and we are part of a team that is formulating a product strategy for the company.5. It would be a unique competitive position. Let’s assume we know what desired outcomes our customers value and the metrics that predict their satisfaction.5 are the top metrics as prioritized from a list of over 100 metrics. would that enable us to achieve a unique and valued competitive position? It certainly would. Assume that the ﬁve predictive metrics stated in Table 5. then to be competitive.

The important point is that we actually know which items to focus on to create value and to occupy a unique and valued competitive position. we can then set out to formulate a strategy or solution that will enable us to occupy that position. ‘‘Although we gave a boost to the benchmarking industry with our previous book. Other examples of how predictive metrics are used to deﬁne the desired competitive position are shown in Chapter 9 and in Appendix C. because it would satisfy many important desired outcomes and deliver customer value.5 Setting Target Values That Deﬁne the Desired Competitive Position
occupy that position. We know what competitive position we want to occupy. we now feel that benchmarking is a waste of time for managers that understand lean thinking. It would be a valued competitive position.’’
. If our organization could create music media that was only 2 inches in diameter. Our earnest advice to lean ﬁrms today is simple: to hell with your competitors. we would achieve our desired competitive position along that very important dimension. we would achieve our desired competitive position across multiple dimensions.92
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Table 5. COMPETING AGAINST PERFECTION In their book titled Lean Thinking (1996) James Womack and Daniel Jones state. The Machine That Changed the World. That would place us in a very unique and valued competitive position. we would achieve our desired competitive position along that very important dimension as well. If we could create music media that met the target values set for all the top metrics. We know that if we ﬁnd a solution that enables us to store 32 songs. Once the desired competitive position is deﬁned. then we will place ourselves in a unique and valued competitive position. If our organization could create music media that stored 32 songs. We know which metrics predict the creation and delivery of value. compete against perfection.

The ultimate target values for the music media metrics are stated in Table 5. After all. regardless of what competitors are doing. regardless of what a competitor is doing. it is likely that customers would be completely satisﬁed along that dimension. This ensures that resources are applied to valued activities that might have otherwise been ignored. In addition.Deﬁning the Desired Competitive Position Table 5. It simply means the offering is somewhat better at satisfying a desired outcome than a competitor’s offering.6. they can be used to systematically accelerate the creation and delivery of customer value.6 Setting the Ultimate Target Value
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Competing with perfection makes far more sense than competing against a competitor. where improvements should be made to most efﬁciently and effectively create and deliver value. The objective is to reach this fully evolved position for each high-priority metric over time. customers may be very unsatisﬁed with the performance of both offerings. This can be achieved through a continuous focus on the metrics that predict the satisfaction of multiple. simply beating a competitor does not guarantee that customers will be satisﬁed with a company’s offering. As a result. will guide an organization in its quest for continuous breakthrough improvement. In reality.000. over the long term. The metrics. Conversely. as perfection has been achieved. perfection can be claimed because that predictive metric is at its fully evolved position. Setting a clear direction for improvement. important desired outcomes.000 songs. If an organization created music media that could store 1. it ensures the organization does not apply its resources to activities that do not create value. If the music sounded live over 100% of the band-
. an organization is challenged to ﬁnd the strategies and solutions that will enable it to achieve the ultimate target values for each of the top metrics. When competing with perfection. Organizations can leverage this knowledge by competing with perfection and only implementing the strategies and solutions that quickly evolve the highpriority metrics to their ultimate target values. in their fully evolved position. When the ultimate target value for a speciﬁc metric is achieved. when an organization gains a lead over a competitor. it often becomes complacent as it lacks both the motivation and direction to improve. Simply knowing which metrics to evolve over time often provides an organization with a competitive advantage. Prioritized predictive metrics deﬁne. deﬁne perfection in the eyes of the customer.

Investing in valuegenerating technologies today will enable an organization to enhance its future market leadership position. rather than competitors. A focus on perfection. it is likely that customers would be completely satisﬁed along that dimension as well. when a strategy or solution is capable of achieving all the ultimate target values. deﬁnes competing with perfection. will accelerate that effort. The objective in any situation then is to uncover the strategies and solutions that will evolve the high priority predictive metrics to their ultimate target values over time. Music media.94
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Figure 5. has come a long way since the days of 33 rpm and 45 rpm records. A graphical representation of this concept is illustrated in Figure 5. As the ultimate target values are achieved for each predictive metric. it is considered fully evolved. It has evolved along multiple dimensions as it holds more songs. The technologies that will enable a music media manufacturer to achieve the stated ultimate target values will lead the ongoing evolution of that industry. in essence.3. A focus on perfection will guide an organization as it makes investments in
. Extending this logic to its natural conclusion. but in each instance. Knowing where to focus the company’s resources will enable it to accelerate the creation of value and maintain a unique and valued competitive position. for example.3 Systematically Accelerating the Creation of Customer Value
width. It may take years to evolve all the top metrics to their fully evolved position. The degree to which the ultimate target values are achieved will determine an organization’s ongoing competitive position. This. the goal is to drive the top predictive metrics to their ultimate target values. An organization’s products and services will evolve as new strategies and solutions drive the associated predictive metrics toward their ultimate target values. Many incremental and breakthrough improvements may be required before the ultimate target values are achieved. is smaller and more effectively resists damage. the music media becomes fully evolved along that stated metric.

6. 3. predictive metrics are used for a variety of purposes. they are measurements against which comparisons can be made and for which target values can be set.Deﬁning the Desired Competitive Position
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new technologies. 4. 2. 7. As a result. Control the implementation of the solution. when executing the USFM. Organizations that rely on predictive metrics to compete with perfection can be assured that the activities and actions they are taking are focused on systematically accelerating the creation and delivery of customer value. Tie employee performance evaluation and reward systems directly to the satisfaction of customer desired outcomes. Set a direction for continuous improvement. services and technologies and forms new alliances. It will guide an organization as it builds its core competencies. SUMMARY The desired competitive position is a unique and valued position that an organization desires to achieve relative to its competitors. they are also used to:
1. Assist in the creation of alternative strategies and solutions. all of which are geared toward the formulation of breakthrough strategies and solutions. Compare the strengths and weaknesses of alternative or competing solutions. 8. and. 5. Quantify the degree to which a solution satisﬁes a set of desired outcomes. As you will see later. it should be valued— meaning it should deliver value to the internal and external customers for whom the strategy is being devised. in addition to using predictive metrics as the basis from which to deﬁne the desired competitive position. Measure the value of a proposed solution in advance of its actual development or implementation. In addition. equipment and people. They represent activities that are valued by the organization and its customers. Many organizations attempt to position their strategies and solutions in the
. it is important to recognize the role that predictive logic and predictive metrics play in the deﬁnition of an organization’s desired competitive position. For now.
Each of these applications will be described in more detail throughout the remainder of the book. Conduct competitive analysis. An organization’s desired competitive position should be unique—meaning it should be different from a position occupied by another organization. OTHER APPLICATIONS OF PREDICTIVE METRICS Predictive metrics predict the satisfaction of customer desired outcomes. pioneers new products.

it often becomes complacent as it lacks both the motivation and direction to improve. reinforce and optimize one another in a way that most efﬁciently predicts the creation and delivery of customer value. It simply means the offering is somewhat better at satisfying a desired outcome than a competitor’s offering. in advance. what competitive position it wants to achieve and then being able to successfully ﬁnd the strategy or solution that will enable it to achieve that desired position. When deﬁning the desired competitive position. The use of this parameter established the basis from which to deﬁne the desired competitive position. In addition. customers may be very unsatisﬁed with the performance of both offerings. They deﬁne where improvements should be made over the long term to efﬁciently create and deliver value. an organization can gain access to the information that is required to deﬁne the organization’s desired competitive position. when prioritized. they can be used to systematically accelerate the creation and delivery of customer value. In addition. it is often more effective if an organization competes with perfection rather than competing against other organizations. deﬁne an array of interlocked activities that complement. regardless of what competitors are doing. In reality. when an organization gains a lead over a competitor. Predictive metrics. Organizations can leverage this knowledge by competing with perfection and only implementing the strategies and solutions that quickly evolve the high priority metrics to their ultimate target values. regardless of what competitors are doing. simply beating a competitor does not guarantee that customers will be satisﬁed with a company’s offering. the creation of a predictive metric is dependent on the ability of an organization to capture desired outcomes that are free from solutions and stable over time.96
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eyes of the customer after the strategy or solution has already been chosen and without knowing if the chosen strategy or solution will enable them to achieve their desired competitive position. This discovery is consistent with the concept of Outcome-Based Logic. This approach to deﬁning the desired competitive position is reactive and often ineffective. Their creation is often inhibited by the use of Solution-Based Logic and after-theevent measurements. After all. will guide an organization in its quest for continuous breakthrough improvement. For that reason. Simply knowing which metrics to evolve over time often provides an organization with a competitive advantage. This ensures that resources are applied to valued activities that might
. It is rare that an organization has access to such powerful metrics. To deﬁne a competitive position that is both unique and valued. We discovered that the consistent formulation of breakthrough strategies and solutions is dependent on an organization’s ability to know. Once these obstacles are overcome. Prioritized predictive metrics provide that direction for improvement. we created a parameter called a predictive metric that predicts the satisfaction of desired outcomes. Setting a clear direction for improvement. an organization must focus on the parameters that predict the creation and delivery of customer value. As a result.

An effective approach to deﬁning the desired competitive position will guide an organization as it makes investments in new technologies. equipment and people. Conversely. services and technologies and forms new alliances. Organizations that use predictive metrics as the basis from which to deﬁne their desired competitive position can be assured that the activities and actions they take are focused on systematically accelerating the creation and delivery of customer value and placing them in a unique and valued competitive position.Deﬁning the Desired Competitive Position
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have otherwise been ignored.
. It will guide an organization as it builds its core competencies. products. it ensures the organization does not apply its resources to activities that do not create value. pioneers new products.

.

can be imposed on a strategy or solution by the organization itself or by a third party.’’ Throughout the ﬁrst ﬁve chapters of this book. June 23. which often result from time. an organization ﬁrst deﬁnes the criteria that describes the optimal solution and then uses that criteria to create. resource or capital limitations. as we have learned. strategist Gary Hamel asks. When applying Outcome-Based Logic. We have introduced an alternative high-level thinking strategy called Outcome-Based Logic that transforms the way organizations approach the process of strategy formulation. The discovery of this structure provides a framework from which an organization can successfully formulate breakthrough strategies and solutions. We have introduced the Universal Strategy Formulation Model (USFM). We have established that constraints. information and the processing power that is required to formulate breakthrough strategies and solutions. evaluate and optimize alternative strategies and solutions until the optimal solution is uncovered. We have shown that the USFM deﬁnes the four essential elements of strategy formulation—desired outcomes. constraints. We have demonstrated that the inherent use of Solution-Based Logic undermines the effective execution of most strategy formulation processes. We have established that desired outcomes can be obtained from customers and that the methods required to capture them have been created. a model that brings structure to the world of strategy formulation. We have established that organizations often lack the structure. ‘‘Can we do anything to increase the fertility of the soil out of which strategy grows? One good place to start is to develop a deep theory of strategy creation. Solutions. we have provided the business world with a comprehensive theory of strategy creation. 1997).Chapter 6
Integrating Structure and Information into a Process for Strategy Formulation
In his article titled ‘‘Killer Strategies’’ (Fortune. come from many sources including customers. the desired competitive position and solutions.
.

We have combined these ideas and discoveries into a solid theory of strategy creation. They are illustrated in Figure 6. The ﬁrst nine steps are required to set up the equation or deﬁne the constants in the USFM. group and company consensus. technologists and others.100
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employees. We will describe the execution of this process in two stages. consultants. will consistently produce breakthrough strategies and solutions. As we explain how this theory of strategy creation is executed. managers.1. we often analogize it to solving a complex simultaneous algebraic equation where you ﬁrst deﬁne the constants in the equation and then work to solve the equation. We will describe how it is designed to gain team. the secrets surrounding the formulation of breakthrough strategies and solutions have been revealed. The steps are listed in the order in which they are normally executed. how it ensures that decisions are based on fact and how it prevents personalities. and how it can be used to enable individuals throughout an organization to contribute their collective knowledge and wisdom to the formulation of breakthrough strategies and solutions. When describing the execution of this process. personal agendas and gut-feel from negatively impacting the chosen strategy. The ideas and discoveries that support this theory of strategy creation have been integrated into a process that. SETTING UP THE STRATEGY FORMULATION EQUATION The CD-MAP process is deﬁned in a series of 16 steps. It is only analogized as an equation to simplify the explanation of its execution. It should be emphasized that the USFM is not actually a mathematical equation. or deﬁning the constants in the USFM. when executed properly. we will describe the step-by-step approach that is required to successfully execute this process. This book is written not only to provide the business world with a deep theory of strategy creation. We will describe how this process changes organizational dynamics. we will apply the same analogy. and we will explain how it is being used to formulate breakthrough strategies and solutions. but to also provide it with a process that enables the application of this theory—a process that integrates structure with information and facts with logic. We have also deﬁned a means by which to deﬁne the desired competitive position before a strategy or solution is chosen. Each step is required to deﬁne the criteria that are needed to create the optimal solution. The ﬁrst stage is described as setting up the strategy formulation equation. In this chapter. politics. This process has been introduced as the Customer-Driven Mission Achievement Process or CDMAP. Many of these ideas and discoveries have resulted from the application of advanced pattern detection techniques.
. The second stage is described as solving the strategy formulation equation or executing the model to uncover the optimal solution. Through these techniques.

‘‘What business are you in?’’ An
. The boundaries of the mission must be clear and agreed upon. Doing so will prevent irrelevant information from entering the strategy formulation process and ensure the desired results can be achieved. the process would enable the organization to create an improved record. the process will optimize that solution. A project mission may be to create a better record. is assuming a record as the solution will prevent the organization from discovering other solutions that utilize competing technologies. It is often advantageous to deﬁne a mission in terms of improving or evolving a process. The mission itself must be concise and speciﬁc to ensure that the organization is focused on one mission at a time. support and management processes. rather than an improved form of music media. of course. if an organization chooses to create an improved record. but that will prevent the discovery of the compact disc or DVD. it may inhibit an organization from looking outside its current paradigm for a potentially better solution. especially when using this process to formulate product and service strategies and strategies that drive an organization’s operating. This all gets back to the old question. It is important to note that if a mission assumes a solution to begin with. It would be better to focus on improving music media. Deﬁne the Mission Initiating this process often requires an organization to think differently about what it is trying to accomplish. 1.Integrating Structure and Information Figure 6.1 The CD-MAP Process: ‘‘Setting Up’’ the Strategy Formulation Equation
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We will describe the actions that should be taken to ensure the successful execution of this process. The problem. but. Deﬁning the mission involves deﬁning what it is the company wants to improve or evolve. For example.

suppliers and employees. its distributors. Deﬁne the Customers To deﬁne the customers. the user community and any affected third party. it is helpful to consider potential customer groups from the organization. A clear. hospital administrators are now responsible for making a large portion
. an organization must identify the individuals. the strategy. Deﬁning the mission is a critical step in formulating a strategy. ‘‘In each business. The Internet evolved the process of obtaining information. of dispersing information. what process or processes are we attempting to evolve?’’ It must formulate a strategy to evolve each of those processes. A two-way radio or cellular phone manufacturer may be in business to evolve the process of two-way communication. that are involved in. In the medical industry. 2. It should be noted that this strategy formulation process is also applicable to new or emerging markets—markets that are on the leading edge or bleeding edge. A failure to include a customer could result in the rejection or failure of a strategy or solution. It is common to have between two and six customer types for any given mission. agreed-upon mission statement must be in place before the process can successfully continue. The microwave oven evolved the process of preparing a meal. or groups of individuals. think in terms of process. When deﬁning the customers in the customer set. of business commerce and other processes. for example. the systems integrator. If the mission were to improve the process of storing and retrieving information. Assuming a solution in the mission statement can preclude the discovery of a breakthrough strategy or solution or prevent the discovery of an emerging market. or affected by. then the customers may include the users of the company’s products and services. This discipline ensures that all the appropriate internal and external customers are considered in the strategy formulation process. The internal and external customer types included in the mission deﬁne the customer set for that speciﬁc mission. A storage device manufacturer may be in business to evolve the process of storing and retrieving information. A medical company may be in business to improve the process of pacing the heart or to improve the process of surgery. An organization must ask itself. given the stated mission. and set the bounds so as to encompass all the opportunities your organization is willing to pursue. plan or decision that is being contemplated. If the mission were to formulate a company strategy. however. An organization may have to consider a new customer type when external changes have been made to the industry structure. A railway may be involved in the process of transportation. It is only applicable.102
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organization may be in many businesses. then the customers may include the end user of the device. if the organization knows which process or processes it is attempting to evolve as it moves into the emerging market. When deﬁning a mission. the company stakeholders and the manufacturing personnel. The fax machine evolved the process of sending and receiving documents.

quantitative research is conducted to prioritize the desired outcomes for each customer type in the customer set. The hospital administrators’ desired outcomes must now be considered by medical device manufacturers when they formulate their company and product strategies. As a result. Any combination of weighting is possible as long as they add up to 100%. It may be more important to satisfy the desired outcomes of one customer type than it is to satisfy the desired outcomes of another.
. The customers may be internal or external customers. Desired outcomes are free from solutions. This weighting reﬂects the importance of each customer type. Surgeons used to play a stronger role. the organization must also decide what weighting to give each customer in the customer set. reliable. serviceable or comfortable. Because there are typically between two and six customer types. They are also stable over time. speciﬁcations and vague words such as easy. We have developed the techniques that are required to capture desired outcomes even when customers offer statements that begin as solutions or vague statements. statistically. each may receive a 25% weighting or two may receive a 30% weighting and the other two may receive a 20% weighting. If there are four customer types in a customer set. The criteria that are to be used to select the customers that are to be interviewed are deﬁned to ensure all pertinent customer types and segments are represented and also to ensure that a diverse set of customers are represented. Desired outcomes are captured in sessions that are conducted with customer types involved in or affected by the speciﬁed mission. depending on the mission that is being undertaken. Approximately 25 to 50 desired outcomes are captured for each customer type in the customer set. it is common for between 50 and 300 desired outcomes to be uncovered for a speciﬁc mission. In addition to deﬁning the customers to be included in the strategy formulation process. 4. As the weighting of a customer is decreased. Uncover the Customers’ Desired Outcomes Customers unintentionally make it difﬁcult to capture desired outcomes. they play less of a role in the creation and evaluation of any proposed strategy or solution. 3. A minimum of 30 interviews are required to ensure. for example. It is common to interview between 30 and 40 individuals representing each customer type when capturing desired outcomes.Integrating Structure and Information
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of the hospital’s purchase decisions. the importance of the desired outcomes stated by that customer are decreased with respect to the other customers’ desired outcomes. The desired outcomes of each customer type are captured using the advanced requirements gathering techniques described in Appendix A. that 96% of all the desired outcomes have been captured from each customer type. because they are typically focused on solutions. Prioritize the Customers’ Desired Outcomes Once the desired outcomes are captured.

its corresponding opportunity is calculated as (9 (9 2)) or 16. Proposed solutions that do not honor the stated constraints must be rejected when they are initially proposed or as they go through the evaluation process. if a desired outcome has an importance value of 9. The importance and satisfaction data are often captured from multiple target segments. If a desired outcome is both important and unsatisﬁed. that organizations do have the option of prioritizing the outcomes based on importance only.104
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Typically. on a scale of 1 to 10. Deﬁne the Constraints Imposed on the Solution Constraints that have been imposed on the solution by any individual. Opportunity is calculated as I (I S). Conversely. They may also result from contractual issues. its corresponding opportunity is calculated as (9 (9 7)) or 11. The calculation considers the importance (I) of each desired outcome and the difference between the importance (I) and satisfaction (S). Constraints often result from time. resource and ﬁnancial limitations. When conducting quantitative research. the number of potential solutions that the organization is able to consider declines. organization. however. if desired. The organization always
. shape and guide which solution is chosen. We use what we call the Opportunity Calculation to determine which desired outcomes are both important and unsatisﬁed. Each of the stated constraints will affect. As constraints are imposed. The outcome that represents the largest opportunity receives the higher value and a higher priority. If a desired outcome has an importance value of 9 and a satisfaction value of 2. They must simply be honored. As a result of completing the quantitative research. phone or personal interviews are conducted with a statistically valid sample of individuals representing each customer type. With this knowledge. areas of opportunity are uncovered. It is not uncommon to have between 10 and 20 constraints imposed on a strategy or solution. statistically valid sample designs and data collection methods must be used. The research is conducted to quantify the importance of each desired outcome and its current level of satisfaction. The documentation of each constraint ensures that the organization is aware of any boundary condition that limits the selection of a potential strategy or solution. For example. as deﬁned in the sample design. Constraints do not have to be prioritized. a wider range of potential solutions becomes available. 5. It should be noted. and a satisfaction value of 7. Statisticians from companies around the world have recognized that the Opportunity Calculation effectively enables an organization to quantify areas of opportunity. the desired outcomes are prioritized based on which offer the greatest degree of opportunity for the organization to create customer value. The methods commonly used to prioritize desired outcomes are described in detail in Appendix A. as constraints are removed. legal obligations or regulatory issues. or third party are deﬁned and documented. it represents an area of opportunity.

Deﬁne a Predictive Metric for Each Desired Outcome A predictive metric is a before-the-event measurement. free from solutions and vague words and stable over time.Integrating Structure and Information
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has the option of modifying or deleting constraints or adding new constraints throughout the process. A well-deﬁned predictive metric is 100% predictive of satisfying its corresponding desired outcome. descriptive of an activity that can be addressed to create value. Each metric strongly predicts the satisfaction of its corresponding desired outcome. Individuals who are experts in their ﬁeld often deﬁne the predictive metrics. To assist in achieving this objective. for example. an advanced approach to segmentation is often executed as part of the CD-MAP process. predictive metrics are used for a variety of purposes. Individuals who are experts at executing the CDMAP process may also deﬁne them. In addition to using predictive metrics as the basis from which to deﬁne the desired competitive position.
6. Cluster analysis is conducted as part of the quantitative research to discover unique market segments. This method of segmentation is rare. business size. Organizations often use these segments as a basis from which to create different solutions for various segments of the population. to predict if a desired outcome will be satisﬁed and to determine the degree to which it will be satisﬁed. evaluate the potential of alternative concepts. When using traditional segmentation schemes. because or-
. Deﬁne and Choose the Target Segment An organization must choose the segment of customers for which it will formulate a breakthrough strategy or solution. It states the parameter that must be measured and controlled. The resulting segments contain homogeneous groups of individuals who value similar desired outcomes. A single predictive metric is deﬁned for each desired outcome. they are also used to create alternative concepts. all of which are geared toward the formulation of breakthrough strategies and solutions.
7. This approach to segmentation is unique from traditional cluster analysis in that desired outcomes are used as the basis for segmentation. It may choose to target the total population or a segment of the population. geography or age group. prior to the implementation of a strategy or solution. set the direction for continuous improvement and tie employee reward systems directly to the creation of value. When executing this advanced strategy formulation process. an organization may choose to target a particular industry. controllable in the design of the strategy or solution. An organization may also want to uncover and target segments that are unique to the industry in an attempt to gain a competitive advantage. appropriate for competitive benchmarking.

When predictive metrics are prioritized using this methodology.106
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ganizations typically fail to capture their customers’ desired outcomes and are not able to use them as the basis for segmentation. When using the Opportunity Calculation. an advanced normalized importance algorithm is then applied. the major opportunities are uncovered and documented for the target segment. For example. Some metrics may predict the satisfaction of only one desired outcome. This calculation is used to prioritize the predictive metrics. reinforce and optimize other activities. purchase decision-makers and internal company managers must be chosen. to some degree. share the same priority. Prioritize the Predictive Metrics Predictive metrics are prioritized using a two-step approach. This analysis enables an organization to determine which metrics predict the satisfaction of the largest number of important desired outcomes. a segment of end-users. although deﬁned to predict the satisfaction of one speciﬁc desired outcome. When the organization selects which speciﬁc segments to target. in descending order. may also predict. by default. when formulating a company or product strategy. When choosing which segments to target. The second step in this prioritization process is based on the fact that a predictive metric. Other metrics may predict the satisfaction of several important desired outcomes. based on the importance of the desired outcomes and the synergy that exists between the predictive metrics and desired outcomes. Their corresponding predictive metrics. Each of them must represent the segments to be targeted with the strategy or solution that is to be devised. is used to assist in establishing the relationships that exist between the desired outcomes and predictive metrics. Once the importance and satisfaction values for each desired outcome have been established. one of the seven tools of quality. the priority order of the desired outcomes is determined. a segment must be chosen for each customer type. This advanced approach to market segmentation is described in more detail in Appendix A. The process of determining these relationships is often referred to as synergy analysis. Once the relationships have been established. The metrics that predict the satisfaction of a large number of important desired outcomes are the metrics with the most synergy. 8. the satisfaction of one or several other desired outcomes. certain predictive metrics represent activities that complement. it is often found that as few as 30% of the metrics often predict the satisfaction of up to 70% of the desired
. It uses the importance and satisfaction ratings associated with each desired outcome as a basis from which to mathematically prioritize the predictive metrics. Matrix analysis. Some metrics may predict the satisfaction of two desired outcomes. In this sense. the importance and satisfaction values given to the desired outcomes by individuals representing those segments are used to prioritize the desired outcomes.

SOLVING THE STRATEGY FORMULATION EQUATION The ﬁrst nine steps in the CD-MAP process are executed to set up the equation or deﬁne the constants in the USFM. A solution that achieves all the assigned target values will enable the organization to occupy its desired competitive position. Politics and personal agendas quickly take a back seat to facts and logic. Set the Target Values That Deﬁne the Desired Competitive Position The desired competitive position that is chosen by an organization should be unique from other competitors. Once the constants in the equation are deﬁned. A detailed explanation of the methods used to prioritize predictive metrics can be found in Appendix B.2. and it should be valued by the organization and its customers. Predictive metrics. This technique enables an organization to position itself against its competitors along some meaningful set of criteria. the organization is prepared to formulate a strategy or solution that will enable it to occupy that position. meaning they are often performed
. Process Steps 10 through 16 are illustrated in Figure 6. before the strategy or solution is formulated. This iterative process is continued until the optimal solution is discovered. Target values are set to deﬁne the desired competitive position and are then used as a guide to drive the creation of solutions that will achieve the desired competitive position. The target values that are assigned to the predictive metrics deﬁne the level of satisfaction that must be achieved by any proposed solution. test.
9. The desired competitive position is established by assigning a target value to each of the high priority predictive metrics. The steps taken to deﬁne the desired competitive position are described in more detail in Chapter 5 and Appendix C. the target values are often deﬁned relative to a competitor’s position. recreate and retest alternative solutions. Once the desired competitive position is deﬁned. it is solved by stepping through a series of iterative steps that are designed to systematically create. They also identify the parameters against which a unique competitive position can be deﬁned. In practice. Possessing this information often changes organizational dynamics as facts now exist that can expose individuals whose intentions are not focused on the creation of customer value. when prioritized. deﬁne the most efﬁcient approach to the creation and delivery of customer value.Integrating Structure and Information
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outcomes. Once completed. an organization has the facts it needs to systematically create customer value. Steps 10 through 14 are iterative in nature. This approach is often taken to ensure that the resulting strategy or solution will enable the organization to occupy a competitive position that is superior to that held by its competitors. They are listed in the order in which they are normally executed.

we will deﬁne the actions that should be taken in order to ensure the successful execution of this process. An organization ﬁrst deﬁnes the criteria that describes the optimal solution and then uses that criteria as the basis for creating and evaluating potential solutions. several features are deﬁned to address the second metric and so on until a variety of features have been deﬁned for the top 30 or so predictive metrics. They are the criteria that deﬁne the optimal solution and. The strategy or solution ultimately chosen should drive the predictive metrics to the levels of satisfaction that are required for the organization to occupy its desired competitive position. Building the universe of possible solutions using this technique is efﬁcient and effective as it only addresses the features that are most
. one or more features are deﬁned to address the ﬁrst predictive metric. This approach often leads to the creation of new ideas and discoveries. Again. deﬁne what desired outcomes the optimal solution must satisfy and the degree to which they must be satisﬁed to occupy a unique and valued competitive position. Using the predictive metrics to assist in the creation of potential strategies and solutions reﬂects the philosophy that is embodied in Outcome-Based Logic.108
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Figure 6. are used to assist in the systematic creation of alternative solutions.2 The CD-MAP Process: ‘‘Solving’’ the Strategy Formulation Equation
several times to uncover the optimal solution. and their assigned target values. Focusing on just one metric at a time makes it possible to channel and focus the organization’s collective knowledge and wisdom on the systematic creation of value. as a result. For example. features are ﬁrst systematically created to address each metric in priority order across the total customer set. 10. Create and Document the Alternative Solutions The prioritized predictive metrics. Documenting these ideas is effectively an effort to document the universe of possible solutions. To create a potential solution.

A concept that receives a negative score should probably not be implemented.Integrating Structure and Information
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appropriate for consideration when formulating a strategy or solution for the stated mission. A concept that receives a score of 5
. Evaluate the Potential of Each Solution The prioritized predictive metrics that are used to create the potential solutions are also used as the criteria by which to evaluate each solution. or one of the stated concepts. Concept evaluations are commonly made using one of two evaluation methods. It is common to use only between 30 and 60 metrics in the evaluation. as it is often the case that 30% of the metrics predict the satisfaction of up to 70% of the desired outcomes. After the ﬁrst concept is deﬁned. the scores for each concept are calculated relative to the baseline concept. form a complete strategy or solution. Feature 2 to address Metric 2. Alternative Concept 3 and so on. only different features are selected for inclusion in the alternative concepts. the objective is to determine if one solution is better than the other solutions at driving each predictive metric toward the target value that deﬁnes the organization’s desired competitive position. an organization may create Alternative Concept 1 by deciding it wants to include Feature 4 to address Metric 1. The documented concepts often end up resembling a list of features that. which is deﬁned as the fully evolved or theoretically perfect concept. Individuals do not have to waste their time and effort generating ideas and features that will not deliver value. For example. the same method is used to build Alternative Concept 2. as features are selected metric by metric. and the features that are included in a concept must be mutually exclusive. Concepts belonging to competitors. strategy or solution. when combined together. It is common to create between three and eight alternative concepts at this stage of the process. Feature 8 to address Metric 3 and so on until features that address the top 30 or so metrics have been selected. speciﬁc features are selected by the organization for inclusion into an overall concept. Once features have been deﬁned for the top metrics. The concepts must be documented in enough detail to discriminate them from other proposed strategies or solutions. The second method involves comparing each concept against a standard. When using this evaluation method. 11. since a better solution is known to exist. When evaluating each concept against a baseline concept. A concept may score between 100 and 100. The ﬁrst method involves comparing each concept against a baseline concept. Each solution is evaluated against the baseline concept to determine how well it performs relative to the top predictive metrics. Alternative concepts are systematically created. concepts that have been proposed in the past or concepts that were created using other methods are also documented at this time. The combination of features that are selected deﬁnes the complete concept.

It enables an organization to effectively determine. A concept that scores over 50 typically delivers breakthrough improvements over the baseline concept. developed. The use of this method enables an organization to determine how much better one concept is over another and the degree to which the theoretically perfect concept has been created. Regardless of which evaluation method is used. improvements to the best solutions can be made by identifying and overcoming their known weaknesses with features that are recog-
. Improve and Re-evaluate Solutions Two different methods are typically employed as part of this process to improve the highest scoring concepts after they have been initially evaluated. This method evaluates the potential for each solution to evolve each metric to its ultimate target value without requiring a comparison to other solutions or a baseline concept. a concept can obtain a score between 0 and 100. Combine. In the ﬁrst method. prepared. 12. prototyped or implemented saves an organization both time and money. then there would continue to be a considerable opportunity for improvement. It enables an organization to implement only the strategies and solutions that will create the most value for the organization and its customers. or TRIZ. If that were the case. If a solution obtains a score of 90%. This methodology requires an organization to rate the ability of a proposed strategy or solution to achieve the ultimate target value for each metric. then that means the proposed solution evolves the product. service. The ﬁrst involves systematically analyzing and eliminating the weaknesses of the highest scoring solutions. it is important to note that the evaluation is taking place at the concept stage—at the time of conception. Having the ability to make this evaluation before the solution is actually designed. A concept can only obtain a score of 100 if it drives every metric to its ultimate target value. testing it to determine how close it is to being the theoretically perfect concept. where 100 means the concept is fully evolved. which is often referred to as TIPS.110
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to 15 offers incremental improvement over the alternative solution. This is the world in which most organizations live today. When using this method. plan and create its own future. process or subject of interest to 90% of its fully evolved position. that means the proposed solution evolves the product. process or subject of interest to 53% of its fully evolved position. The second method for evaluating the potential of a proposed strategy or solution involves testing the solution to determine the degree to which it has achieved a fully evolved position. If a solution obtains a score of 53%. in other words. service. and only a small amount of opportunity for improvement remains. A score in this range is typically achieved when an organization successfully applies Solution-Based Logic techniques to the process of strategy formulation. The objective of using this process is to create a concept that will score in this range. The second involves the application of the Theory of Inventive Problem Solving.

For example. which is highlighted in his book titled 40 Principles: TRIZ Keys to Technical Innovation (1990). Multiple solutions may be created. Its weaknesses are identiﬁed when it is determined that the highest scoring solution did not score as well as another concept on a speciﬁc metric. The principles represent patterns of invention that can be applied in many situations to overcome conﬂicts or contradictions. Ensure the Constraints and Desired Competitive Position Are Achieved After completing steps 10 through 12. Doing so often takes time and effort.Integrating Structure and Information
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nized strengths in other solutions. The creation of additional value may be dependent on an organization’s ability to create solutions that allow the simultaneous achievement of seemingly contradictory desired outcomes. It should be noted that the optimal solution is not always the solution that utilizes the latest and greatest technology. Prematurely accepting that a trade-off must be made may preclude an organization from discovering a new way of achieving the satisfaction of both desired outcomes. This activity produces new concepts that can then be evaluated. The theory is based on research completed by Genrich Altshuller who worked in the patent ofﬁce of the Russian navy during the 1940s. combined. the optimal solution is often identiﬁed. They are often used as part of this process to assist an organization in thinking of new ways to overcome a conﬂict without having to make a trade-off. After several iterations of improvement. the highest scoring solution may have a weakness that is identiﬁed when the concepts are evaluated. If the feature can be included in the highest scoring concept. then the highest scoring concept is improved through the elimination of one of its weaknesses. His research. It is often found that a proposed solution positively satisﬁes one important desired outcome. involved the analysis of thousands of patents. The analysis resulted in the 88 TIPS principles. The patents were analyzed to determine if similar principles were used to achieve breakthroughs across various disciplines. It is often the solution that uses ideas and technology wisely to obtain the optimal results. The highly valued solutions are
. improved and re-tested. but negatively impacts other important desired outcomes. As part of this process. The second method that is used to improve the highest scoring solutions involves overcoming conﬂicts that speciﬁc solutions may have with different desired outcomes. the solutions that satisfy the largest percentage of desired outcomes are known. the organization is presented with 88 inventive problem-solving principles that were derived from TIPS. tested. The only way another concept can score better than the highest scoring concept on a speciﬁc metric is if it contains a feature that is not currently found in the highest scoring concept. The idea is to then take the feature from the lower scoring concept and determine if it can be included or modiﬁed for inclusion in the highest scoring concept. 13.

the organization deﬁnes the feasibility values that are appropriate for the situation. risk and effort factors associated with the implementation of each solution are determined. After all. Clearly. Other feasibility factors are assessed as required.0 to 2. it can be highly conﬁdent that it is selecting the optimal solution for the stated mission. As a result. then the organization must decide whether to repeat steps 10 through 12 or modify the imposed constraints or the target values that have been set. The feasibility values range from 1.
15. Once the factors are established. the objective is to formulate a breakthrough strategy or solution. risk and effort will likely be selected as the optimal solution. Selecting the optimal solution becomes academic at this point in the process. An overall feasibility score is then calculated by dividing the concept evaluation scores by each of the feasibility values. The strategy or solution that delivers the most value for the least cost. Test the Highly Valued Solutions for Feasibility At this point in the process. If they do not. So making the ﬁnal selection may require further evaluation. the most attractive solutions are often evaluated for feasibility.0. and a value of 2. a value of 1. constraints and competitive positioning values are known and represent the criteria that have been used to
. at this point in the process.0 means the strategy or solution poses great technical risk. As a general rule of thumb. Using risk as an example. does not always enable the organization to achieve the target values that were set for every predictive metric. The cost.0 means the strategy or solution proposes no technical risk.
14. Values are established for each factor for the remaining concepts. As the organization makes the ﬁnal selection.112
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documented in detail. The best solution. It must know when to keep trying and when to move forward with implementation. Select the Optimal Solution The ﬁnal selection is based on all the evaluations that were previously conducted. A vast amount of data exists that enables an organization to select the strategy or solution that they will pursue. an organization may have formulated two or three concepts that are shown to deliver similar amounts of value. It must now be veriﬁed that the proposed solutions honor the constraints imposed on the solution and meet or exceed the target values that deﬁne the desired competitive position. it must decide whether or not to spend more time and effort devising features that will enable the target values to be achieved. we do not exit the iterative improvement phase of this process until a solution is formulated that satisﬁes at least 50% of the customers’ desired outcomes better than the existing strategy or solution. When an organization faces this scenario. the desired outcomes.

Unlike most strategy formulation processes. This ensures that company employees are focused on the creation of value well into the future and
. Feasibility factors representing cost. the relationships between the features and the metrics are identiﬁed. Prepare for Implementation The implementation of the optimal strategy or solution is planned and structured to ensure it is implemented in a way that will deliver the desired results. honors the stated constraints and enables the organization to achieve its desired competitive position. Predictive metrics describe the activities that must be completed to effectively deploy the chosen strategy or solution. Using matrix analysis. The optimal strategy or solution can now be selected for implementation. First. Upon completing this activity. The features that drive multiple metrics toward their stated target values often receive a higher priority than those that impact only one metric. The features comprising the selected strategy or solution are tied to the predictive metrics. This information is of value to those who are responsible for evolving the process. the organization knows which features are contributing the most value to the strategy or solution for the least cost. this information is often used to prioritize the features within the chosen strategy or solution based on their value contribution. The highest scoring solutions represent those that will create and deliver the most value. risk and effort are then deﬁned for each feature. Management often uses this information to achieve three major objectives. when using this advanced strategy formulation process. The features with the most synergy are identiﬁed. and to those responsible for managing that evolution. organizations agree that the optimal strategy or solution has been selected over 90% of the time.Integrating Structure and Information
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create and evaluate the alternative strategies and solutions. uncovering or inventing the features and technologies that will drive the deployed metrics to their ultimate target values over time. Based on post project evaluations. risk and effort. the information is often used to drive an organization’s continuous breakthrough improvement programs. The optimal solution is the one solution that satisﬁes the largest number of important desired outcomes. risk and effort. Second. The features receiving the lowest priority. As a result. It is also the concept that delivers the most value for the least cost. product. service or strategy of interest. would have the least impact on the amount of value that is delivered by the chosen strategy or solution. The high-priority predictive metrics are deployed to the individuals in the organization who are responsible for deﬁning. if left out of the concept. the use of this process allows an organization to determine when the optimal solution has been created. the user knows when to stop the iterative concept creation process and proceed with implementation. The high-priority features are deployed to the individuals in the organization who are responsible for their implementation. This gives the organization the information that is needed to determine where resources should be applied ﬁrst. 16.

Joseph Juran states that ‘‘quality planning can be produced through a road map. 2. Doing so ties the reward system directly to the creation of customer value. however. employee performance and reward programs can be tied to the deployment activities. this strategy formulation process can be viewed as a quality tool for strategy formulation.’’
The CD-MAP process supports Juran’s theories on quality planning and provides a means by which to implement his theories in a practical manner. Since quality can be deﬁned as the degree to which the customers’ important desired outcomes are satisﬁed. When features are prioritized and deployed for implementation and the prioritized predictive metrics are deployed to drive continuous breakthrough improvement. Organizations now have a process that will enable them to participate in an Intellectual Revolution: a revolution in which organizations create their own futures. Identifying who are the customers. Organizations can no longer afford to rely on gut-feel and intuition to determine their futures. an invariable sequence of steps including:
1.114
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know where to focus their efforts to achieve continuous breakthrough improvements. Quality. Third. For years. To date. continues to be the responsibility of all managers within an organization. They can no longer afford to let politics drive decisions that determine the amount of value they will create for the organization and its customers. The output of an organization’s strategy formulation processes deﬁnes its future role as a competitor and a creator of value. Strategy formulation is often an ongoing activity within an organization. THE LINK TO QUALITY In his book titled Juran on Leadership for Quality (1989). As a result. Translating those needs into our language. encourage change
. Determining the needs of those customers. Optimizing the product features so as to meet our needs as well as customers’ needs. 5. The process introduced in this book is turning Juran’s quality planning theory into a reality. they have not had the processes that are required to make this possible. organizations have been inclined to follow the advice of Juran and other leaders in quality planning. 3. this information is often used to measure and reward employee performance. This process enables organizations to achieve many of its business and ﬁnancial objectives. 4. reward and incentive programs are often tied to the measurements resulting from these feature and metric deployment activities. It may be for this reason that it is common for an organization’s quality management team to support the application of this process within an organization. Developing a product that can respond to those needs.

. broken into two stages. 6. The execution of this process is often analogous to solving a complex simultaneous algebraic equation. the CD-MAP process is deﬁned in a series of sixteen steps. but also to provide it with a process that enables the application of this theory—a process that integrates structure with information and facts with logic. Deﬁne the constraints that are imposed on the solution. Prioritize the customers’ desired outcomes. This stage is described as setting up the strategy formulation equation or deﬁning the constants in the USFM. Deﬁne the customers that must be satisﬁed. an organization must:
1. and a revolution in which an organization of any size can possess the structure. To execute the ﬁrst stage of the CD-MAP process. Deﬁne the organization’s desired competitive position. will consistently produce breakthrough strategies and solutions. 9. This process is called CD-MAP. Deﬁne the mission that is to be achieved. Many of these ideas and discoveries have resulted from the application of advanced pattern detection techniques. Prioritize the predictive metrics. predictive logic and target values that deﬁne the desired competitive position have provided a strong foundation upon which to build a solid theory of strategy creation. the USFM. 3. 7.Integrating Structure and Information
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and focus on the creation of value. the secrets surrounding the formulation of breakthrough strategies and solutions have been revealed. where an organization ﬁrst deﬁnes the constants in the equation and then works to solve the equation. desired outcomes. information and processing power required to formulate strategies and solutions that will strengthen its strategic position. Uncover the customers’ desired outcomes. 5. the essential elements of strategy formulation. As a result. when executed properly.
SUMMARY Ideas and discoveries such as Outcome-Based Logic. The ideas and discoveries that support this theory of strategy creation have been integrated into a process that. Deﬁne and choose the segment of individuals to target. 2. Stage one incorporates the ﬁrst nine steps of the process. Through these techniques. a revolution in which organizations understand what their customers value and use that information as the basis for their actions. 8. The same analogy can be used when explaining the steps that must be taken to effectively execute this advanced strategy formulation process. This book is written not only to provide the business world with a deep theory of strategy creation. Deﬁne a predictive metric for each desired outcome. 4.

Politics and personal agendas quickly take a back seat to facts and logic. which core competencies to build. test. Combine. 14. Ensure the constraints and desired competitive position are achieved. 11. The CD-MAP process is a systematic approach to the formulation of breakthrough strategies and solutions. an organization has the facts it needs to systematically create customer value. it is solved by stepping through a series of iterative steps that are designed to systematically create. Prepare for implementation. Once completed. which alliances to form. make value generating investment decisions and determine which products and service concepts to pioneer. 15. Test the highly valued solutions for feasibility. Evaluate the potential of each alternative solution. which activities to pursue and which trade-offs to make. Once the constants in the equation are deﬁned.116
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Each of these steps must be taken to deﬁne the criteria that are needed to create the optimal solution. Select the optimal solution.
With the use of this advanced strategy formulation process. recreate and retest alternative solutions to effectively execute the second stage of the CD-MAP process an organization must:
10. Create and document several alternative solutions. Possessing this information often changes organizational dynamics as facts now exist that can expose individuals whose intentions are not focused on the creation of customer value. organizations have the power to consistently and effectively anticipate future opportunities. 13. improve and re-evaluate the best solutions. 16.
. 12.

this process could be used to ﬁnd ways to slow the effects of aging. billing. promotion. To ensure the effective execution of this process. welfare and other social issues. product and service strategies and strategies that drive an organization’s operating. planning. It could be used to ﬁnd solutions to crime. It is also used to help organizations overcome the challenges they face in manufacturing. supplier relations and other areas of business. The process will not result in a breakthrough strategy or solution if customers or their desired outcomes are ignored or if constraints go undeﬁned. It is commonly used to formulate overall company strategies. health care. It is often used to improve time-to-market and valueadded processes. however. is dependent on its inputs and the effectiveness of its execution. optimize investment and trade-off decisions. advertising. pricing. In a broader sense. an organization must ensure that it is executed correctly. This process can be used to formulate a strategy in any situation in which there are customers who have desired outcomes. plan or decision is being contemplated. The output of any process. optimize product and service concepts. improve the process of genetic therapy development or choose a candidate to run in a political party. identify and select target markets. collections. employee development. distribution. The effective execution of the CD-MAP process requires solid inputs and adherence to the steps that deﬁne the integrity of the process. support and management processes. and execute other activities that impact customer and employee satisfaction.Chapter 7
Engaging in the Intellectual Revolution
The CD-MAP process is designed to enable an organization to achieve any mission in which a strategy. development. Breakthrough results cannot be expected if solutions are accepted as requirements or faulty quantitative methods are used to prioritize the importance of the desired outcomes.
.

Bradley Gale summarizes several problems that are common to teams. They do not share a common language or metrics of strategy. In addition. They can be carried out using a variety of methods. We will describe how this discovery—in conjunction with advances made in computer and software technology—has made it possible to simplify subsequent applications of the CD-MAP process for missions in which data has been captured. it is often best to consider a team approach to strategy formulation.118
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The steps that deﬁne the effective execution of the CD-MAP process have been deﬁned. We will ﬁrst describe how a team approach to strategy formulation is often used in conjunction with executing this process. We will describe how an organization can use these methods. tools and technologies to assist in their execution. over time. We will then deﬁne the mechanics of executing the process when using a team approach by explaining what activities should be taken over an appropriate time period to complete the process. The advent of Outcome-Based Logic. Next. we will describe how advances in technology have made it possible to use this process across the entire enterprise to drive the creation of value. employees can use this technology to enable the consistent and ongoing formulation of breakthrough strategies and solutions. by integrating important customer data and virtual libraries of alternative solutions into an integrated knowledge network. In his book Managing Customer Value (1994).
A TEAM APPROACH TO STRATEGY FORMULATION When using this process for applications that cut across many organizations or across many functions within an organization. as organizations routinely applied Solution-Based Logic when executing their strategy formulation processes. Executives lack training outside their functional areas. We realize that a team approach to strategy formulation may not have worked in the past. We will show how. we will describe how. ‘‘Teams do not always unite to think through the problems of serving customers because:
1. has changed the dynamics of team interactions. however. we will describe how computer and software technology is providing the processing power that is required to formulate breakthrough strategies and solutions and is enabling organizations to overcome what used to be a natural barrier to success. tools and technologies to engage in the Intellectual Revolution.
. Lastly. The drawbacks of a team approach to strategy formulation have been well documented over the past 10 years. He states. 2. we discovered that the very nature of desired outcomes and predictive metrics lends itself to reusing much of the information captured for a speciﬁc mission in subsequent attempts to address or readdress the same mission.

In addition to beneﬁting the organization as a whole. They share information and facts and focus that knowledge on the creation of value. Enabled them to become effective agents of change.’’
Many of the problems that are noted are directly related to the application of Solution-Based Logic. 4. but few pull their market research and other non-ﬁnancial data together in ways that enable them to act on it effectively. The team rarely sees crucial non-ﬁnancial information in a form that the members can understand and digest. When executing the CD-MAP process. Enabled them to be focused and creative. team members have stated that they believe the use of this process:
1. Include individuals who will be impacted by the resulting strategy or solution in the strategy formulation process. individuals have stated that executing this strategy formulation process using a team approach has enabled them to:
1. 3.Engaging in the Intellectual Revolution
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3. Gain consensus and support for the resulting strategy or solution across the entire team. 2. 5. 2. 6. a team approach to the process of strategy formulation overcomes these and other related problems. Empowered them to make decisions. Improved the way they were able to interact with others. Several beneﬁts of applying a team approach to the process of strategy formulation have been captured from organizations after they completed teamrelated CD-MAP projects. In post project interviews. the execution of this process—according to team members—also offered beneﬁts to the individuals participating on the team. The structure. 4. 6. 3. 4.
. Gain cross-functional and company-wide commitment to the resulting strategy or solution. gut-feel or other subjective factors from adversely affecting the selection of a strategy or solution. In post project interviews. Organizations invest large amounts in market research. Understand the rationale that is being used by other individuals as they make recommendations and decisions. Assisted them in driving organizational change in a non-threatening manner. Improved their decision-making skills. Prevent politics. information and processing power required to create a breakthrough strategy or solution is provided to the team. 5. Make decisions that are focused on the creation of customer value.

The description of each session will provide insight into how the process is structured and executed when using a team approach. the concepts that drive this process can be used by an organization on an ongoing basis to conduct many of its strategy formulation. each requiring the completion of various activities that are essential to the successful execution of the process. planning and decision-making activities.
THE MECHANICS OF EXECUTING A TEAM APPROACH TO STRATEGY FORMULATION Executing this process using a team approach typically requires the involvement of a trained facilitator in addition to the team.
. evaluating and often implementing the soughtafter strategy or solution. Slight variations in this time line are common. They are responsible for creating. The team is not required to conduct any activity prior to the ﬁrst session. A team typically consists of 6 to 10 individuals who represent various functions within the organization. and each session lasts between one and four days. the amount of work assigned to the facilitator and the objectives associated with creating the team.120
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Figure 7. The meeting days are often grouped together into sessions. but the activities are typically the same from application to application.1 A Typical CD-MAP Project Time Line
The CD-MAP process brings new dynamics to the process of strategy formulation.1. Once learned. the team can expect to meet between 5 and 25 non-consecutive days. the mission. It is common to conduct six team sessions. Over a period of three to six months. The number of days is dependent on the complexity of the project. It should be noted that the successful application of this process is dependent on its proper technical execution. The activities that are executed during these sessions typically follow the time line shown in Figure 7. All team members must be present when a session is in progress.

The process and the theory behind it are explained in detail at this session. 3. Education on each aspect of the process continues throughout the remainder of the project. Obtaining meaningful. The session begins by gaining team agreement on the mission and deﬁning the scope of the project.
The most time consuming activity is typically creating the plan to obtain the desired outcomes from each customer type. This effort must be completed prior to the start of Session 2. It is important to educate the team on the process. 4. Session 2 The second session requires between one and four days of team activity. Once agreement is obtained. Because this information is needed to conduct the activities that are required before the next session is held. After the initial education is complete. actionable outcomes is the most important. who to recruit and what to include in the screener to ensure the appropriate individuals are recruited for the desired outcome gathering sessions. know what to expect upon completion and know what role they will play. so they will be comfortable with how it works. The facilitator is responsible for presenting the results of the desired outcome gath-
. The team members are expected to watch at least one of the outcome gathering sessions. Once the desired outcomes are captured from multiple sessions. The time between sessions is used to capture the desired outcomes from each of the customer types in the customer set.Engaging in the Intellectual Revolution
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Session 1 The ﬁrst session typically extends between one and three days. Agree on the project schedule for the remaining sessions. This activity requires the team to decide where to conduct the qualitative research. Team members are not asked to capture desired outcomes as they are rarely trained to do so. where appropriate. Determine which customer types to include in the customer set. 5. Individuals who excel at gathering desired outcomes should be responsible for capturing the desired outcomes. Create a plan to obtain desired outcomes from each customer type. 2. The desired outcomes are captured through a series of customer interviews. Create a plan to quantify the importance and satisfaction of each desired outcome. the team is introduced to the CD-MAP process. aspect of this process. The techniques that are used to capture desired outcomes are discussed in Appendix A. duplicate outcomes are removed from the resulting list and subsets and supersets are eliminated. Conﬁrm the venue and facilities for the remaining sessions. The second session is typically planned to take place four to six weeks after the ﬁrst session. the team and the facilitator work together to:
1. all these decisions must be agreed upon before the session concludes. and often the most difﬁcult.

Any questions regarding the resulting desired outcomes or how they were captured should be addressed with the team. concise and complete. Finalize the quantitative market research plan. The third session usually requires between one and four days of team activity. they are not expected to complete this activity for all of the customer types. Complete the sample design.
Before this session is completed. then moving forward becomes a risky proposition. The quantitative research is still in process and is not available to the team at this session. They must agree on where (in what countries) to conduct the market research. Deﬁne the predictive metrics for each desired outcome. what segments of the population to include as statistically valid cells in the sample design. It is usually performed by a third party research ﬁrm and managed by the project facilitator. Quantitative research is required to obtain the importance and satisfaction data for the desired outcomes and to conduct an Outcome-Based Segmentation analysis where required. This would likely undermine the team approach at this stage of the process. At the second session. It is important that the team members know what steps were taken to ensure that at least 96% of the customers’ desired outcomes were captured. It typically takes between four and eight weeks to complete this activity. Review the customers’ desired outcomes. the questionnaires are ﬁnalized and the quantitative research begins.122
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ering sessions to the team. Session 3 The third session is typically conducted three to four weeks after the second session is completed. 4. Determine the relationships between each predictive metric and each desired outcome using matrix analysis. the team must have a solid plan to conduct the quantitative research. Immediately after this session is concluded. how many interviews to conduct. and what segment proﬁling questions to include in the questionnaire. 3. The team is not asked to conduct project work activities independently between sessions. Finalize the questionnaires required to quantify the importance and satisfaction of each desired outcome. the facilitator and team work together to:
1. 6. Although the team typically begins to deﬁne predictive metrics for each of the desired outcomes at this session. The facilitator and team use this session to:
. whether or not to conduct Outcome-Based Segmentation. The desired outcomes should be clear. 5. If the team does not agree with the desired outcomes or the methods used to capture them. 2. It is important to obtain team commitment to the results of each step of the process.

it is often mentally draining for the team members as well. Complete the deﬁnition of predictive metrics for each desired outcome.Engaging in the Intellectual Revolution Figure 7. Many short breaks are commonly taken as this activity is completed.
The time and effort that is required to deﬁne the relationships between the desired outcomes and predictive metrics should not be underestimated. 2. and it may take longer if a large number of interviews are required. At the same time. As an option. the predictive metrics are deﬁned and the relationships between the desired outcomes and predictive metrics are established. execute this part of the process and present the results to the remainder of the team. it should be managed by a trained facilitator. if well trained.2. It is not necessary for all the team members to become experts
. If external quantitative research is not required. 3. Once they are captured. they are quantiﬁed for importance and satisfaction. Prepare for concept creation. It is common to conduct between 60 and 270 interviews per customer type. It is rare that larger samples are necessary. 4. It takes approximately 12 weeks to complete this portion of the process if external quantitative research is required. Complete the analysis of the relationships between each predictive metric and each desired outcome using matrix analysis. In summary. the desired outcomes are captured ﬁrst. To ensure this process is executed effectively. The process steps that have been described thus far are illustrated in Figure 7. this phase could be completed in as little as four to six weeks. we often recommend that a smaller team or the facilitator.2 Executing the CD-MAP Process
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1. Not only is this activity time consuming. Deﬁne any constraints imposed on the solution.

This methodology is described in Appendix A. Once the research results are presented. Analyze the resulting data and analyze the results of the segmentation study. A good facilitator. proﬁling data. competitive analysis data. Assist the team in deﬁning the predictive metrics and deﬁning the relationships between the metrics and the desired outcomes. not facilitate it. Session 4 Because the quantitative research is required for the fourth session. the facilitator presents the team with the results of the market research and segmentation analysis. To successfully execute Sessions 1. Others rely on the assistance of external facilitators or consultants to assist with the execution of the process. is a prerequisite for success. ideas and concepts that address the predictive metrics with the most synergy. prioritized desired outcome data and prioritized predictive metric data. At this session. 6. 3. Clustering techniques are used to segment the market.124
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in the process. Design the market research sample. If cluster analysis has been conducted. They typically include charts that show importance and satisfaction data. That information may include segment size. The fourth session typically requires between one and four days of team activity. the facilitator may also include information regarding each of the resulting segments. the facilitator leads the team through the activities required to complete the deﬁnition of the criteria that will be used
. This information is available for various segments and clusters and for all customers in the customer set. Set up the desired outcome gathering sessions. 9. as their role is to participate in the process. The research results are prepared for presentation by the facilitator prior to the team session. this session is typically scheduled to take place two to eight weeks after the completion of the third session. Design the questionnaire to be used for the research. Capture the desired outcomes. 8. During this time period. the facilitator must be able to:
1. 2. 7. 2. however. 4. 5. the team is expected to start brainstorming features. and 3.
Several organizations have developed the internal expertise that is required to execute this process effectively. Organize a team of experts for the purpose of deﬁning and prioritizing predictive metrics. Manage the data collection activity. opportunity data and other information that will help the team decide whether or not to target any of the segments. Provide the organization with the required education and training.

2. During the fourth session. 3. Session 5 At the ﬁfth session. 6. Deﬁne features for each of the high priority predictive metrics. from the documented list of features. that will best drive the high priority predictive metrics toward their desired target values. Uncover the weaknesses in the most highly valued solutions and systematically eliminate them. 2. Analyze the completed market research results. To make this process more efﬁcient. 5.
In this session. Deﬁne the desired competitive position. the facilitator and team work together to create and evaluate many other alternative concepts. They are effectively deﬁning and documenting the universe of possible solutions from which the alternative strategies or solutions will be created. the team often has the time to evaluate just one or two concepts. 8. the team is expected to work together or independently to deﬁne several features that would likely drive each of the high priority metrics to the target values. 4. 7. Complete the evaluation of any new concepts against the high priority predictive metrics. the team is required to:
1. Review and complete the list of constraints that have been imposed on the solution. which also requires between one and four days of team activity.
. the team is asked to:
1. Evaluate several concepts against the high priority predictive metrics. Create concepts using the high priority predictive metrics as a guide. The team members should present the facilitator with their lists of features prior to the start of the next session. Once several additional concepts are created.Engaging in the Intellectual Revolution
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to deﬁne and evaluate alternative strategies and solutions. Determine which segment or segments to target. The objective of this session is to ensure that the team is prepared to create and evaluate concepts and to focus them on the metrics that will be used to create and evaluate the alternative solutions. which deﬁne the organization’s desired competitive position. the team knows where it needs to focus its attention to create a breakthrough solution. the facilitator should ensure that the team members are only documenting features that will honor the constraints imposed on the solution. After this session. The concepts are often created by systematically selecting the features. They deﬁne the basic functions of the subject of interest. Deﬁne any basic functions that customers expect any alternative strategy or solution to perform. Functional tree diagrams are often used to deﬁne the basic functions. During the two to four weeks leading up to the ﬁfth session.

5 and 6 are executed effectively. Conﬁrm the feasibility of the optimal solution. Conduct follow-up activities. Select the features that make up the optimal solution.
.
Upon completion of this process. the universe of possible solutions contracts or expands.
When creating the optimal solution. If agreement is not readily obtained. Systematically eliminate any weaknesses from the best solution. When either of these constants are modiﬁed. 3. Prepare the data resulting from the quantitative research study for team review. Prioritize the features included in the optimal solution. the team and facilitator work together to:
1. and new considerations must be made. Gain team consensus on which strategy or solution to pursue. 5. then any newly suggested concepts are evaluated. Evaluate solutions for feasibility. Verify or gain agreement on the optimal solution. the team discusses and resolves any issues with the chosen solution. Session 6 At the sixth session. the team members should be committed to a speciﬁc strategy or solution and understand the process to the point where they can defend why that strategy or solution was chosen. Gain agreement on the optimal solution. Create a plan for deploying and implementing the chosen strategy or solution. Since the optimal solution was likely created during this session. This session typically ends in near ﬁnal agreement as to which strategy or solution is to be selected. 5. 6. It is prudent for the facilitator to conduct follow-up sessions on regular intervals to ensure the concept is being implemented as planned. 3. the facilitator must know how to:
1. They have had two to three weeks to conduct any independent analyses they would like to perform prior to committing to the strategy or solution. it is appropriate to let the team digest. 2. To ensure Sessions 4.126
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3. During this session. 4. which lasts between one and four days. 4. the team may be required to modify or eliminate some of the constraints or alter the desired competitive position. Evaluate the potential of the alternative strategies or solutions. Systematically create and document the universe of possible solutions. analyze and get familiar with the favored strategy or solution over the following two to three weeks before the team meets again to reach a ﬁnal conclusion. 2. 4.

and neither will the process of strategy formulation. This process is not a substitute for great people. This limitation is deﬁned as the third natural barrier or obstacle that often precludes the creation of breakthrough strategies and solutions. 10 and 20 constraints. The ﬁrst two barriers have been addressed.000 independent decisions are often required to create the optimal solution. It takes more than the structure of the USFM and information in the form of desired outcomes.
PROCESSING POWER Back in Chapter 1. we established there are three barriers that often stand in the way of formulating breakthrough strategies and solutions. it is no wonder that the process of strategy formulation failed to evolve dramatically until computer and software technology brought processing power to the forefront of everyday business life. When contemplating strategies. 50 and 300 target values that deﬁne the desired competitive position. information and processing power. It enables an organization to overcome the natural processing limitations of the human mind. Given the fact that individuals can only process between ﬁve and nine pieces of information at a time. It simply ensures that they are focused on the creation of value.Engaging in the Intellectual Revolution
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A team approach to this process works best when a strong facilitator is leading a strong team through each step of the process. The ﬁnal result is dependent on what an organization is able to include in its universe of possible solutions. skills and creative talents of those using the process. networks. It is unlikely that any two organizations would reach the same conclusion. The human mind is limited in its ability to simultaneously process the thousands of pieces of information required to formulate strategies. and one remains. remember. the world of computing will never be the same. With the advent of personal computers. Intranets and the Internet. They are structure. plans and decisions. would they reach the same conclusion?’’ It is important to note that the solutions derived through the use of this process are dependent on the knowledge. enabling organizations to overcome what used to be a natural barrier to success. deﬁne plans and make complex decisions. Software technology provides organizations with the power that is required to process critical information within the structure of the Universal Strategy Formulation Model (USFM). process and apply the thousands of pertinent facts that are required to successfully formulate breakthrough strategies and so-
. Software technology is being used to assist in the execution of the CD-MAP process. and thousands of potential solutions. ‘‘If more than one organization uses this process to formulate a strategy or solution relating to the same mission. We have calculated that over 40. A question that typically arises is. an organization must often consider between 50 and 300 desired outcomes. It enhances an organization’s capacity to know. constraints and competitive positioning data to enable the creation of breakthrough strategies and solutions.

It is often used to drive the discovery of the optimal solution. information and technology—to create breakthrough strategies and solutions. The importance and satisfaction ratings for each of the desired outcomes. we discovered the very nature of desired outcomes and predictive metrics lends itself to reuse much of the information that is captured for a speciﬁc mission in subsequent attempts to address or readdress the same mission. for many points in time. 2. 6. Once the information is made available to others in the organization. Detailed deﬁnitions of alternative concepts. This enables the ongoing and widespread use of valuable information. this process is driving an Intellectual Revolution in business: a revolution in which individuals are empowered—through structure. 5. The relationships between all the desired outcomes and all the predictive metrics. 7. or target markets. it can be used to assist the organization in creating and evaluating alternative strategies and solutions. desired outcomes. they can use it to formulate strategies. After a project is completed. for each customer type. 3. 8. The desired outcomes of each customer type in the customer set. Other information. After all. The information is often stored for various segments. They can use it on an ongoing basis. SIMPLIFYING THE ONGOING APPLICATION OF THE CD-MAP PROCESS Over time. the software is often distributed to others in the organization—expanding the use of the project information beyond a single project team and across the entire organization. deﬁne plans and make complex decisions relating to that mission. make trade-off decisions. The predictive metrics for each desired outcome. and in many situations. Features that deﬁne the universe of possible solutions.
Once this information is captured and embedded into a software tool. What changes from situation to situation is the im-
. They can use it to evaluate new investment decisions. 4. predictive metrics and the relationships between them are stable over time.128
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lutions. Commonly encountered constraints. widespread application of this advanced strategy formulation process. calculations and algorithms that are required to execute the USFM and uncover the optimal solution. This enables the automatic prioritization of the metrics given the importance and satisfaction ratings that have been assigned to the corresponding desired outcomes. Facilitators of the CD-MAP process routinely use software to store. retrieve and process:
1. As a result. anticipate future opportunities and accelerate the creation and delivery of customer value as it relates to that mission. Software technology is enabling the practical.

in our role as consultants to streamline the application of the CD-MAP process for the missions that have universal appeal. The condensed project time line is shown in Figure 7. as we call them. Evaluate the attractiveness of a speciﬁc market. 7. As a result of this breakthrough. we set out to capture the information required to execute several missions that are universal across many organizations. who in the past could not afford the luxury of using advanced strategy formulation technologies. 9. Evaluate the attractiveness of a speciﬁc market segment. Imagine all company employees contributing their ideas to this virtual
. APPLYING CD-MAP TECHNOLOGY AT THE ENTERPRISE LEVEL Advances in technology have also made it possible to use this process at the enterprise level to redeﬁne the way employees work and the way managers drive the creation of value in an organization. Formulate a strategy to improve the manufacturing process and related operations. 6. many small. 5. Formulate a pricing strategy. 4. the software modules contain the information that is required to help an organization:
1.
The use of these software modules simpliﬁes the application of the CD-MAP process for the facilitator and saves the organization a considerable amount of both time and money.and medium-sized companies. The time required to execute the entire process can be reduced to between two and eight weeks. can now participate in the Intellectual Revolution with a process that consistently yields breakthrough results.Engaging in the Intellectual Revolution
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portance of each desired outcome and the degree to which the outcome is currently satisﬁed. 8.3. 2. Formulate a strategy to improve the product development process. has made it possible to simplify the subsequent applications of the CD-MAP process for missions in which data has already been captured. As a result of this discovery. Formulate an overall company strategy. Formulate a strategy for introducing change into the organization. Formulate a strategy to improve the company/supplier relationship. We use these modules. This discovery. 3. For example. Imagine an organization building virtual libraries of alternative solutions for the organization’s key missions and placing them on an integrated knowledge network. in conjunction with advancements made in computer and software technology. Evaluate the attractiveness of a new business opportunity. 10. Formulate a distribution strategy.

tapping the wealth of knowledge that exists within an organization. The solutions that effectively pass through the ﬁlters are the most valued solutions. The use of Outcome-Based Logic. which is fundamental to the
. Then. improve time-tomarket and improve employee satisfaction. imagine individuals across the organization using that information to assist in the nearly automated execution of the CD-MAP process. through software that contains a series of advanced artiﬁcial intelligence algorithms. all of which will contribute to an Intellectual Revolution in business. They can use it to help the company deﬁne internal process improvement strategies that will reduce cost. Many of the problems traditionally associated with the use of teams are directly related to the application of SolutionBased Logic.130
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Figure 7. SUMMARY When using this process for applications that cut across many organizations or across many functions within an organization. The software acts like a series of ﬁlters—ﬁltering out the solutions in the universe of possible solutions that do not satisfy important desired outcomes— while honoring constraints and enabling the achievement of the desired competitive position. The software designed to achieve this objective performs the function illustrated in Figure 7. it is often best to consider a team approach to strategy formulation. resulting in the consistent formulation of breakthrough strategies and solutions. individuals throughout the company can use this technology to formulate breakthrough product and service solutions aimed at speciﬁc customer segments.3 A Condensed CD-MAP Project Time Line
library of alternative solutions. Once such a network is in place. This technology exists today.4. They can use this technology to help the organization achieve a variety of missions and overcome many of its major business challenges.

It enhances an organization’s capacity to know. All team members must be present when a session is in progress. each requiring the completion of various activities that are essential to the successful execution of the process. remember. It enables an organization to overcome the natural processing limitations of the human mind. When executing this process using a team approach. it typically requires the involvement of a trained facilitator in addition to the team. the team can expect to meet between 5 and 25 non-consecutive days. They are responsible for creating. the process is executed.
. Regardless of whether or not a team approach is used. A team typically consists of 6 to 10 individuals who represent various functions within the organization. overcomes many of these problems. process and apply the thousands of pertinent facts that are required to successfully formulate breakthrough strategies and solutions. and each session lasts between one and four days. Over a period of three to six months. and the team concludes with the selection of what is typically considered a breakthrough strategy or solution. computer and software technology are being used to assist in the execution of the CD-MAP process. The meeting days are often grouped together into sessions. Over those six sessions. evaluating and often implementing the sought-after strategy or solution. This enables organizations to overcome what used to be one of the three natural barriers to success.4 Filtering Out the Optimal Solution
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CD-MAP process.Engaging in the Intellectual Revolution Figure 7. It is common to conduct six team sessions. The dynamics of teams are changed when they are able to share information. facts and knowledge and focus on the creation of value. Software technology provides organizations with the power to process critical information within the structure of the USFM.

After all. This advanced approach to strategy formulation provides organizations with the structure. resulting in the consistent formulation of breakthrough strategies and solutions. gutfeel and self-serving motivations as inﬂuences in the strategy formulation process. What changes from situation to situation is the importance of each desired outcome and the degree to which the outcome is currently being satisﬁed.
. predictive metrics and the relationships that exist between them are stable over time. Traditional approaches to strategy formulation are giving way to new ideas and new technologies. In addition. Imagine an organization building virtual libraries of alternative solutions for the organization’s key missions and placing them on an integrated knowledge network. we discovered the very nature of desired outcomes and predictive metrics lends itself to reuse much of the information that is captured for a speciﬁc mission in subsequent attempts to address or readdress the same mission. desired outcomes. Imagine all company employees contributing their ideas to this virtual library of alternative solutions— tapping the wealth of knowledge that exists within an organization. information and processing power that is required to achieve many missions. The Intellectual Revolution has begun.132
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Over time. This technology exists today. This discovery—in conjunction with advances made in computer and software technology—has made it possible to simplify the subsequent applications of the CD-MAP process for missions in which data has already been captured. This has made it possible to dramatically reduce the time and effort it takes to execute the CD-MAP process for missions that are universal across companies and industries. imagine individuals across the organization using that information to assist in the nearly automated execution of the CD-MAP process. Then through software that contains a series of advanced artiﬁcial intelligence algorithms. We have deﬁned a solid theory of strategy creation and developed the structure. information and technologies that are required to support it. advances in technology have made it possible to use this process at the enterprise level to redeﬁne the way employees work and the way managers drive the creation of value in an organization. The process of strategy formulation is quickly evolving. Decisions that were once made subjectively and emotionally are now being made objectively and logically. Facts and logic are replacing politics.

It integrates the structure. In many cases. The ﬁnancial beneﬁts of using this process have been documented by several organizations. investments and activities to pursue. A manufacturer of industrial packaging used this process to create a strategy that increased their market share by 10% in an environment in which the top ten players had less than 50% market share. A medical device manufacturer used this process to create a line of angioplasty balloons that took them from less than 1% market share to a market leadership position in just two years. product and services strategies and strategies that drive an organization’s operating. a Fortune 100 company ﬁgured out how to reduce the cost of development by over 80% while reducing development time by nearly 75%. This process is being used by organizations around the world to effectively choose which markets. when using this process to improve the development of composite materials. It considers the essential elements of strategy formulation and is supported by the structure of the Universal Strategy Formulation Model (USFM). technologies. For example. products.Chapter 8
Case Studies and Evaluations
We have established that this strategy formulation process provides organizations with the capability to consistently formulate breakthrough strategies and solutions. information and processing power that is required to uncover the optimal solution in any situation. Many organizations have used this process to formulate overall company strategies and product and service strategies that they believe will revolutionize their
. but at 40% of the cost. A cardiac pacing system company used this process to create a product that offered the same function as a highly valued competitive product. dramatic ﬁnancial improvements were obtained. support and management processes. It is based on the application of Outcome-Based Logic. It is being used to formulate company strategies.

in deﬁning a strategy to develop and market a new line of angioplasty balloon products. They were responsible for participating in the process and implementing the resulting strategy.134
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business. has consistently resulted in strategies and solutions that deliver up to 10 times more value than those created using traditional strategy formulation methods. Some are already on the market and others will be introduced by various organizations in the near future. Three organizations have given their permission to discuss the results of speciﬁc projects. Desired outcomes were captured from each customer type in the customer set. The Total Quality Group facilitated a consulting project for the Rigid Packaging Division of Southcorp. in New South Wales. organizations have recognized gains in market share. The third case study describes how this process was used by Pratt & Whitney. The team deﬁned predictive metrics for each desired outcome and established the relationships between the metrics and the desired outcomes. The case studies describe the results that were achieved when using this advanced strategy formulation process to devise an overall company strategy. It was believed that a 2% increase in market share was an aggressive goal in a market where the top 10 manufacturers controlled only 50% of the total market. The ﬁrst case study describes how this process was used to formulate an overall business strategy for Southcorp. The second case study describes how this process was used to assist Cordis Corporation. The customers were deﬁned as the users of the products and the stakeholders in the Southcorp organization. formerly Gadsden Rheem. formerly a division of Gadsden Rheem. The application of this process. a questionnaire was developed and used to enable the quantiﬁcation of the importance and
. CASE I: FORMULATING A DIVISION STRATEGY AT SOUTHCORP In 1993. Many product and service concepts have been created as a result of using this process. are also included in this chapter. A cross-functional team was formed representing all key areas of the business. regardless of the industry or company in which it has been applied. now a division of Johnson & Johnson. The facilitators and the team performed the activities required to deﬁne the constants in the USFM. The results of two of those evaluations. this process has undergone evaluations at several organizations using various evaluation methods. In addition. to formulate a strategy that was aimed at improving its manufacturing operation. a product strategy and a strategy that was focused on the improvement of an internal company process. At the same time. In most cases in which this process has been applied. one made at Motorola and the other made at Hewlett-Packard. Australia. The general manager of the division was the sponsor of the project. The project mission was to develop and deploy a strategy aimed at improving the division’s overall market share by 2%. a division of United Technologies. revenue and proﬁt while reducing their costs and cycle times.

Once all the data was available and analyzed. This enabled the systematic tracking of progress and the management of the strategy. the
. reinforce and optimize one another were uncovered. CASE II: FORMULATING A PRODUCT STRATEGY AT CORDIS CORPORATION In early 1993. The strategy was implemented in late 1993. Southcorp’s management estimates that 7% of that increase was directly attributed to the implementation of the strategy resulting from this process. The vice presidents of operations and marketing cosponsored the project. quality and manufacturing. After several days. By 1996 Southcorp’s market share had increased by 10% in a highly competitive market. The chosen strategy satisﬁed over 50% of the desired outcomes better than their existing strategy. At this point in the project. At the time the project began. segment speciﬁc strategies were created. The project mission was to develop and deploy a product strategy aimed at making Cordis Corporation a major player in the angioplasty balloon market. and their measurement system was tied directly to the creation of customer value. the constants were deﬁned and the ‘‘equation’’ was ready to be solved. Desired outcomes were captured from cardiologists. a medical device company located in South Florida. At that time.Case Studies and Evaluations
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satisfaction values for each desired outcome. and their stock was valued around $20 per share. Once the data collection was completed. regulatory. clinical. The team worked diligently to create a strategy that would address the metrics predicting the delivery of value. Cordis had less than a 1% share of the angioplasty balloon market. The facilitator and team performed the activities required to deﬁne the constants in the USFM. The cross-functional team involved in the project included individuals from engineering. This result was achieved by effectively enabling Southcorp to deﬁne a unique and valued competitive position and to determine which activities to pursue to achieve that position. The customers were deﬁned as the cardiologists who use the products. to help them devise a portfolio of products that would enable them to successfully enter a new market. a strategy was chosen. An implementation plan was deﬁned using the predictive metrics as a guide. The objective was to formulate a product strategy that would enable Cordis to achieve at least a 5% gain of market share as a result of this effort. Cordis was a $223 million-a-year company. Activities that complement. cluster analysis was performed on the data using the desired outcomes as the basis for segmentation. Several uniquely deﬁned segments were uncovered and subsequently targeted. we were asked by Cordis Corporation. the technical staff who assist and prepare the products during the procedure and the stakeholders within the Cordis organization. marketing. the team used the data as the basis for formulating an overall division strategy.

Cordis introduced 12 angioplasty catheters and saw its market share in interventional cardiology grow from less than 1% to nearly 10% in the United States.136
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technical staff and stakeholders. Once all the data was available and analyzed. Through the use of this process. this process provided a platform to agree and disagree in a manner that enabled the selection of the best overall solution. Cordis gained a market leadership position. Cordis Corporation was able to successfully anticipate future opportunities and make the trade-off and investment decisions that were required to accelerate the creation and delivery of customer value. The team created a series of product concepts that addressed the metrics predicting the delivery of value. At this point. As stated by one Cordis team member:
This process provided beneﬁts beyond those typically measured in ﬁnancial statements. Its market share approached 20% in Europe. Over the next year. the information required to create and evaluate potential concepts was deﬁned. Several initially favored concepts were shown to deliver little incremental value and were dropped from consideration. use unbiased measures and formulate product concepts that all could support. Their revenues for ﬁscal year ending June 1995 grew to $443 million.
By mid-1995. Each of the chosen product concepts satisﬁed at least 40% of the customers’ desired outcomes better than the products they were benchmarked against. An implementation plan was deﬁned using predictive metrics as the basis for deployment.
. Johnson & Johnson acquired them for $109 per share. Questionnaires were developed and used to collect the importance and satisfaction values for each desired outcome from a statistically valid number of individuals representing the target market. They went on to create the products that the customer wanted and the team could deliver. As a team development tool. In February 1996. They were able to identify the product features that delivered customer value and to deliver a series of products that placed them in a unique and valued competitive position. 30% in Canada and 18% in Japan. It also changed the views of project team members who were emotionally locked into a solution. Net sales were up 30%. and the company’s $50 million cash position enabled Cordis to expand into new markets. Many concepts were evaluated. The team deﬁned predictive metrics for each desired outcome and established the relationships between the metrics and the desired outcomes. This process drove the team to focus on real requirements rather than solutions. the team used the data as a guide in the formulation of an overall product strategy.

Several individuals within the organization supported the investment that had been proposed. the team went on to uncover a series of smaller investments that would enable the organization to satisfy over 70% of the customers’ desired outcomes better than they were currently being satisﬁed. Taking on the challenge of coming up with a better investment strategy. we were asked by Pratt & Whitney Aircraft. a division of United Technologies. The project mission was to determine whether or not a proposed investment should be made to improve the manufacturing operation. the team concluded that the investment under consideration would enable the organization to better satisfy approximately 8% of the customers’ desired outcomes. to help them formulate a strategy to improve their manufacturing operation. It should be noted top management proposed the investment that was to be evaluated. Desired outcomes were captured from each customer type in the customer set. It was clear to the team that the proposed investment failed to address many of the customers’ most important and unsatisﬁed desired outcomes. Management wanted to be certain that any investment made in the manufacturing operation would deliver value to its customers. As an added bonus. The team deﬁned predictive metrics for each desired outcome and established the relationships between the metrics and the desired outcomes. A questionnaire was developed and used to collect the data needed to quantify the importance and satisfaction of each desired outcome. The customers were deﬁned as the users of the manufacturing facility. As a result of the project. and many within the organization viewed our role as one of validating that management had made a good choice. In the ﬁnal analysis. The ability of the team to redirect its attention to the areas of opportunity led them to an investment strategy that delivered over 10 times more value than the investment strategy initially under consideration. the team used the data as a guide to evaluate the investment decision. As a challenge to the team. Once all the data was available and analyzed. The vice president of manufacturing sponsored the project. management did not pursue the investment
. they were not only asked to evaluate the potential of the investment under consideration. It was known that this investment would cost the organization approximately $7 million. They were prepared to move forward with the investment. but to also come up with any other investment options that would deliver greater levels of value. the manufacturing personnel and the stakeholders in the manufacturing organization. The facilitator and team performed the activities required to execute the process. The cross-functional team involved in the project included individuals from all areas of the manufacturing organization. the cost of the chosen investment strategy was less than the cost of the initially proposed strategy.Case Studies and Evaluations
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CASE III: FORMULATING AN OPERATING STRATEGY AT UNITED TECHNOLOGIES In 1994.

The satisfaction levels of the desired outcomes shown here were improved between 150% and 293%. The results for the top desired outcomes are documented in Table 8. A QUANTIFICATION OF PROCESS BENEFITS AT MOTOROLA In early 1995. this time with our advanced strategy formulation process. They completed the evaluation using the same 5-point scale. the information resulting from the project has been used on numerous occasions to evaluate other investment opportunities. Approximately 25 desired outcomes were captured in total.138
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that was initially proposed. After the project was completed. Improvements such as these are possible as this strategy formulation process provides the structure. Prior to executing this process with the team. they were again asked to rate their level of satisfaction. they were asked to rate the degree to which their desired outcomes were satisﬁed with the methods they typically use for strategy formulation. A QUANTIFICATION OF PROCESS BENEFITS AT HEWLETT-PACKARD In another evaluation of this process. By the end of 1996. the investments made by Pratt & Whitney management were shown to deliver a major increase. This has given management conﬁdence in its ability to make investment decisions that deliver value to the organization and its customers. In addition. a group of approximately 30 individuals involved in formulating a product strategy within Motorola were asked to evaluate the use of this process. The results of that survey are documented in Table 8. The team considered them to be dramatic improvements in satisfaction. in overall customer satisfaction. This process enabled Pratt & Whitney to formulate a strategy that vastly improved its manufacturing operation. The percent improvement is calculated in the column on the right. They were ﬁrst asked to state the desired outcomes they wanted to achieve from an advanced strategy formulation process. This result was achieved by effectively enabling the organization to make the trade-off decisions required to optimize their investment decisions. estimated around 35%. which was conducted in 1997.1. information and processing power required to overcome the traditional barriers that organizations face when formulating strategies and solutions.1. individuals involved in the formulation of a product strategy for a group within Hewlett-Packard compared the results obtained from their traditional strategy formulation methods with those produced by this advanced strategy formulation
. it made many of the investments proposed by the team. Instead. They used a 5-point scale where 5 meant completely satisﬁed and 1 meant very unsatisﬁed.

the use of this advanced strategy formulation process enabled them to formulate a product concept that could be delivered within six months and satisﬁed over 45% of the customers’ desired outcomes better than the previous concept. like other divisions. The comparison shows that the use of this process dramatically accelerates the rate at which customer value is created. The contrasting rates of value creation are shown in Figure 8. to better satisfy 30% of the customers’ desired outcomes. Upon conducting the evaluation. or ﬁve product enhancements. At this rate of improvement. In contrast. As a result. it took them approximately 30 months. and create product concepts that deliver breakthrough results. This is more than a ﬁve-fold improvement in the rate at which value is created.
.1 Improvements Resulting from the Use of the CD-MAP Process
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process. the application of this process is enabling HP to leapfrog several generations of products that would deliver incremental value. it was found that the product enhancements created using their traditional strategy formulation methods typically satisﬁed about 6% of their customers’ desired outcomes better than the previous product.Case Studies and Evaluations Table 8. It also enabled them to formulate a product concept that could be delivered within 12 months and satisﬁed over 70% of the customers’ desired outcomes better than the previous concept. is focused on continuous improvement and strives to release product enhancements every six months. Their objective now is to achieve continuous breakthrough improvement. It should be noted that this particular HP division.1.

Determine what the priorities of the organization should be. In their own words. Improve its ability to create value for the organization and its customers. users have stated that this process enabled their organization to:
1.’’ This process provides an
. Enhance its ability to reach a conclusion or consensus. Decide how to allocate time and company resources.1 Using Advanced Strategy Formulation Technology to Accelerate the Creation of Value
ADVANTAGES AND DISADVANTAGES OF USING THIS PROCESS Some of the more general beneﬁts of using this process were captured over time from a cross section of individuals representing Fortune 100 companies and other smaller organizations that have used this process to achieve a variety of objectives. 8. Deﬁne the actions that enable the organization to achieve its objectives. 5. Improve company policy. Harness knowledge from across the organization and focus it on the creation of value. 9.140
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Figure 8. 6.
As Peter Senge states in his book titled The Fifth Discipline (1990). 12. a learning organization is a group of people who are continually enhancing their capability to create their own future. Develop a valuable core competency. 4. 3. Increase customer satisfaction. 10. Incorporate new thinking into the organization. 7. Consistently create breakthrough strategies and solutions. 2. Share knowledge and information company-wide. ‘‘In the simplest sense. 11.

it will deliver them a breakthrough strategy or solution. and systematically use that information to accelerate the creation of value with breakthrough solutions. In addition to uncovering the recognized beneﬁts of this process. Individuals who are adverse to change may not be overly interested in using this process. they may be less willing to use it.Case Studies and Evaluations
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organization with the structure. This adversity to change is common and expected. As stated by C. Second. something that rarely results from the use of traditional strategy formulation methods. coordination and team effort. They may not all be easy to understand and internalize. This may take time. but individuals or teams still have to put in the effort to create. re-create and re-evaluate solutions until the optimal solution is discovered. Some organizations say they simply cannot ﬁnd the time it will take to participate in this type of process. we have also taken the time to understand why some organizations have been reluctant to use this advanced approach to strategy formulation. Lastly. many organizations are often spending much more time and effort formulating their strategies and solutions than they would if they were to use this process. First. It enables it to focus on the metrics that predict the creation and delivery of customer value. they do not notice how much time they are actually spending on formulating their strategies and solutions. Others may perceive their span of control to be threatened. In reality. positioning and other elements of strategy formulation. they may threaten others in the organization who use politically or personally motivated criteria to drive company activities. this process often challenges well-established paradigms and often requires that individuals think differently about customer requirements. In addition. there are many steps associated with this process. Not everyone views this in a positive light. Many individuals simply do not want to think differently about strategy formulation or learn a new process. This process provides everything that is required to create breakthrough strategies and solutions. But because their activities are completed over longer periods of time. It is difﬁcult for some organizations to recognize that this process will actually save them time and effort. The execution of this process is designed to assist in the construction of a learning organization. the effective use of this process requires thought and discipline. It also requires thought. this process may be perceived to shift the balance of power within an organization as it provides workers and low-level management with a ﬁrst-hand knowledge of the customers’ desired outcomes and the ability to use that information to formulate breakthrough strategies and solutions. If individuals are uncomfortable with any aspect of this process. One objective of this book is to provide enough detail about each aspect of this process to make individuals feel comfortable with the concepts. information and processing power it requires to create its own future. and often consist of uncoordinated activities that go untracked. discipline and creativity. evaluate. Third. Since the decisions and recommendations of workers and low-level managers using this process are based on fact. Dan McArthur and Larry Womack in Outcome Manage-
.

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ment (1995), ‘‘The organization’s structure, infrastructure and activities must be driven by the needs of the customer and the business of the company, not by personal needs and ambition.’’ Not everyone, however, prefers to act in accordance with this philosophy. SUMMARY We have shown that this process is being used by organizations around the world to effectively formulate company strategies, product and services strategies and strategies that drive an organization’s operating, support and management processes. We have documented several cases in which this process has produced breakthrough strategies and solutions. For example, when using this process to improve the development of composite materials, a Fortune 100 company ﬁgured out how to reduce the cost of development by over 80% while reducing development time by nearly 75%. A cardiac pacing system company used this process to create a product that offered the same function as a highly valued competitive product, but at 40% of the cost. A manufacturer of industrial packaging used this process to create a strategy that increased their market share by 10% in an environment in which the top ten players had less than 50% market share. A medical device manufacturer used this process to create a line of angioplasty balloons that took them from less than 1% market share to a market leadership position in just two years. In addition to documenting several case studies that demonstrate the successful execution of this process, we have also documented process evaluations that describe the amount of value this process has generated for two well-known companies. One evaluation of this process, completed at Motorola in 1995, showed that many of the important desired outcomes they wanted to achieve from a strategy formulation process were far better satisﬁed through the use of this process than they were through the use of their traditional strategy formulation methods. This process was documented to deliver dramatic increases in the satisfaction of many of Motorola’s most important desired outcomes relating to the process of strategy formulation. The satisfaction levels of many desired outcomes were improved by over 150%. Some satisfaction levels were increased by 293%, nearly a three-fold improvement. In 1997, a process evaluation was completed at Hewlett-Packard. The evaluation showed that the use of this strategy formulation process accelerated the rate at which they could create value for their customers by a factor of 5. Dramatic improvements such as these are possible, because this strategy formulation process provides the means by which to formulate breakthrough strategies and solutions. It enables organizations to overcome the traditional barriers they often face when executing the process of strategy formulation. It provides the structure, information and processing power that is required to accelerate the creation and delivery of customer value.

Chapter 9

Executing Concepts of Strategy
Organizations that are effective in using this advanced strategy formulation process are driving an Intellectual Revolution in business. They have the capability to effectively accelerate the creation and delivery of customer value. They are able to anticipate future opportunities, ensure their investments deliver value, occupy a competitive position that is both unique and valued and conduct other activities that determine an organization’s strength as a creator of value. They are able to formulate strategies, deﬁne plans and make complex decisions that deliver up to 10 times more value than the strategies and solutions created by organizations that continue to use traditional strategy formulation methods. This process enables organizations to think and act strategically. It enables motivated individuals to use the power of strategic thinking to overcome the challenges faced by their organizations and customers. It takes the mystery out of strategy and enables organizations to put into practice the theories that are supported by well-respected strategists, consultants and academics. This chapter describes how this process is being used to address the important elements of strategy formulation as they are deﬁned by one of today’s leading strategists. SPECIFIC EXPECTATIONS OF STRATEGY One insightful deﬁnition of strategy comes from Michael E. Porter, the C. Roland Christensen Professor of Business Administration at the Harvard Business School. In his article titled ‘‘What Is Strategy?’’ (1996), he describes what an effective strategy must deliver. He states that, ‘‘an effective strategy must enable an organization to:

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1. Uncover a unique and valued position that involves a set of activities that are different than those taken by competitors. 2. Make all the required trade-offs, vis-a-vis competitors, to determine what activities ` should be pursued, and what actions should be taken. 3. Ensure the activities that are taken to execute the strategy ﬁt together to create a distinctive and sustainable competitive advantage for the organization.’’

It follows that a strategy formulation process used to create such a strategy must enable an organization to achieve these objectives. Using strategy formulation processes that apply Solution-Based Logic make it difﬁcult to achieve these objectives for all the reasons that have been presented. For example, when using Solution-Based Logic, desired outcomes often go uncovered; predictive metrics are rarely used; the desired competitive position is often considered after the strategy or solution has been devised; and the process itself is often driven by politics, gut-feel and intuition rather than facts. The ability to apply Outcome-Based Logic, use the structure of the Universal Strategy Formulation Model (USFM) and obtain information in the form of desired outcomes and predictive metrics enables an organization to achieve these and other expectations of strategy. In this chapter, we will demonstrate how this advanced strategy formulation process could be used to enable an organization to achieve these strategic objectives. To demonstrate how they could be achieved, we will focus on a company that Michael Porter cites in his article ‘‘What Is Strategy?’’ as an organization that has been able to effectively achieve the three stated strategic objectives—Southwest Airlines. To make this demonstration effective, we have used the Southwest Airlines example in his article as the basis for our demonstration. But, we have fabricated a set of desired outcomes and predictive metrics and have assumed a set of values that deﬁne their importance. Although this demonstration does not reﬂect the completeness that accompanies the ﬂawless execution of the USFM, it does offer some insight as to how this process can be applied to proactively formulate a breakthrough strategy. Please note that each time Michael Porter is referenced in this chapter, the reference is related to his article, ‘‘What Is Strategy?’’ (1996) unless stated otherwise. STRATEGY AS POSITIONING As stated by Michael Porter, ‘‘an effective strategy will enable an organization to uncover a unique and valued competitive position; one that involves a set of activities that are different than those taken by its competitors.’’ To formulate a strategy that enables an organization to achieve this objective, the organization must be able to effectively determine:
1. What potential target markets exist, and which segments to target. 2. What activities are valued by that set of target customers.

Executing Concepts of Strategy 3. How well each activity is currently performed by competitors.

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4. What level of satisfaction must be achieved for each activity to occupy a unique and valued competitive position.

The demonstration that follows shows how to obtain this information and how an organization such as Southwest Airlines could have used this information to deﬁne the unique and valued competitive position they occupy today. Choosing the Target Segment Historically, one of the most difﬁcult aspects of occupying a unique and valued competitive position has been choosing which segment of customers to target. When selecting a target segment, organizations traditionally have a product or service in mind and then try to ﬁnd the segment of the population that values that product or service. This approach is reactive and consistent with Solution-Based Logic. The organization has a solution and then determines whom to target with that solution. When using Outcome-Based Logic, the approach to choosing a target segment is different. An organization must be able to answer the following questions. What are we attempting to achieve as an organization? What segment of customers will allow us to get there? We will demonstrate how the use of Outcome-Based Segmentation, as we call it, enables an organization to select the target customers who will ensure the organization achieves its ﬁnancial and strategic objectives. The segmentation process begins by capturing the desired outcomes of a diverse set of airline passengers. The interviewed passengers represent business travelers, families, students and retirees. Individuals representing a variety of age groups and income levels are interviewed. We use our outcome gathering techniques to uncover between 25 and 50 desired outcomes from the 30 to 40 individuals that are interviewed. Once the desired outcomes are captured, their corresponding importance and satisfaction values are quantiﬁed across all potential segments using the market research methods described in Appendix A. In addition, Outcome-Based Segmentation is conducted to determine what segments exist. The organization then sets out to determine which segments are most attractive. An attractive market segment often contains a homogeneous set of individuals whose most important desired outcomes are unsatisﬁed. By deﬁnition, such a segment would offer an organization a high degree of opportunity. Other criteria that are used to evaluate the attractiveness of a segment will vary from company to company and from situation to situation. Southwest, for example, may have been searching for a segment that:
1. Represents a sizable portion of the overall population. 2. Plays to the strengths of the organization. 3. Complements the organization’s existing culture.

The segments are deﬁned and proﬁled so the organization knows the makeup of each segment. such as Southwest. its size and many other important factors that will help evaluate each segment against the stated attractiveness criteria. these criteria are typically captured. Because desired outcomes are used as the basis for Outcome-Based Segmentation. Perceives the organization in a positive light. many segments are uncovered in which passengers value a unique set of desired outcomes.1. It is the discovery of this opportunity that enables an organization. The segments that are chosen are the ones that best satisfy the segment selection criteria. The results also indicated that individuals in this segment are ﬁnancially constrained. or 5. Using this approach. Much more information would be known about the target market than this example suggests. Lacks a strong competitor. Keep in mind.146
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Table 9.
An attractive market segment may also be required to satisfy other criteria that are important to the organization. the data resulting from the segmentation analysis showed that passengers in the target segment valued an airline that could minimize the passengers cost of ﬂying. but as a result of the research. When executing this process. S
Satisfaction.
4. yet unsatisﬁed. As a result of the segmentation analysis. minimize the time required to go between cities and ensure on-time departures. The importance and satisfaction values for each desired outcome were quantiﬁed in the segmentation study. satisfaction and opportunity values are shown Table 9.
. desired outcomes. to create a strategy yielding a strong strategic position. Southwest likely found a segment that met its attractiveness criteria. The passengers in this segment possessed a unique set of important. It is this commonality that statistically brings them together. As documented in Table 9. an organization not only has the distinct advantage of knowing that this segment exists. prioritized and used to effectively choose which segment or segments to target.1. The top three desired outcomes and their corresponding importance.1 Quantifying the Importance and Satisfaction of the Passengers’ Desired Outcomes
*I
Importance of each desired outcome. The fact that each passenger in this segment ﬁnds these desired outcomes both important and unsatisﬁed is the reason why they form a segment. in a real world study up to 50 desired outcomes may be considered in the segmentation analysis. It is shown that the passengers in Southwest’s target segment ﬁnd the desired outcomes stated above to be both important and unsatisﬁed.

At this point in the process. We know what is valued by each of the customer groups that would be affected by the strategy that is being devised. The desired outcomes of these customer groups would also be captured and prioritized. In the Southwest Airlines example. in a real world study up to 50 desired outcomes may have been included in the study. This information is required
. Outcome-Based Segmentation enables organizations to uncover unique segments that are not constrained by artiﬁcial classiﬁcations or titles such as industry. satisfaction and opportunity values have been uncovered. The stakeholders’ most important desired outcomes involve various aspects of reducing costs and increasing company proﬁts. up to 50 desired outcomes would likely be considered. Research would also be conducted with potential employees to uncover their desired outcomes. the other customers in the customer set are considered. Determining What Activities Are Valued by the Targeted Customers Once the target segment is chosen and the customers’ desired outcomes are known and prioritized. Let’s assume that upon completion of the research. Again. a market segment with important and unsatisﬁed desired outcomes has been uncovered and targeted. The organization can then evaluate each segment against the attractiveness criteria that has been deﬁned as important by the organization and select the segment or segments that best meet the stated criteria. the potential employees’ top two desired outcomes and their corresponding importance and satisfaction values were uncovered.3. Between 25 and 50 desired outcomes would likely be captured from each customer group. the desired outcomes of internal company stakeholders and potential employees have been captured and prioritized.Executing Concepts of Strategy
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they also know the size of the segment and what desired outcomes are valued by the individuals that are in it. business size or demographics. The research also enables the organization to uncover key areas of opportunity. and the required research would be conducted to quantify which desired outcomes are most important and least satisﬁed. They are shown in Table 9. In addition. The organization now knows what criteria a strategy must meet to create value for the internal company stakeholders. the other customers would likely include internal company stakeholders and company employees. Let’s assume that the stakeholders’ top ﬁve desired outcomes and their corresponding importance. the stakeholders must take into consideration the segment the organization has chosen to target. The passengers’ most important desired outcomes are known. a representative sample of potential employees would be interviewed to quantify which desired outcomes are most important and least satisﬁed. Once they are captured. Again. They are shown in Table 9. When quantifying the importance of the stakeholders’ desired outcomes. The research shows that the potential employees want high levels of compensation and also want to share in company proﬁts.2.

4. The airline performing this
. As a result of this analysis.3 Quantifying the Importance and Satisfaction of the Employees’ Desired Outcomes
*I
Importance of each desired outcome. The value that is shown in the column on the right is the normalized importance value associated with each predictive metric. The methods used to deﬁne and prioritize predictive metrics are discussed in Appendix B. The metrics that predict the satisfaction of the important desired outcomes stated by the passengers. S
Satisfaction. As the process continues. predictive metrics are deﬁned for each desired outcome and are then prioritized. therefore. S
Satisfaction. For example.148
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Table 9. Notice that the predictive metrics deﬁne activities that must be performed to create value for the target customers in this situation. stakeholders and employees are stated in priority order in Table 9. increasing the percent of departures that leave on time predicts that more ﬂights will leave on time.2 Quantifying the Importance and Satisfaction of the Stakeholders’ Desired Outcomes
*I
Importance of each desired outcome. receives a higher priority. and if this activity were performed well. This metric has synergy with other desired outcomes and.
Table 9.
before an organization can determine which activities are valued by the targeted set of customers. the metrics with the most synergy are identiﬁed. ‘‘Increasing the percent of departures that leave on time’’ is an activity. it also predicts that the amount of proﬁt obtained daily will be maximized and the daily use of the ﬂeet will be optimized.

4 Prioritized Predictive Metrics
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activity in a way that enables it to always achieve on-time departures will undoubtedly enjoy a competitive advantage.Executing Concepts of Strategy Table 9. 4. Determining How Well Each Activity Is Performed Once an organization determines which activities are valued by its target customers. it can set out to determine how well each activity is being performed by its competitors. by deﬁnition. For example. They represent the array of interlocked activities that complement and reinforce each other. an organization can accomplish this task by benchmarking the competitors of interest. In order for Southwest Airlines to create value for its targeted set of passengers. they must be able to:
1. Increase the percent of departures that leave on time.
It is this set of prioritized activities that must be pursued to create value for the customers in the target segment. Increase the number of hours per day each plane is in ﬂight. They predict the creation and delivery of value. Predictive metrics. it can be determined how well Southwest’s top two hypothetical competitors performed each of the important activities. and so on. 3. The relative strengths and weaknesses of the competitors can also be determined through this analysis. Reduce the cost of interacting with other airlines.
. are descriptive of activities that must be addressed to create value.5. Because the predictive metrics are deﬁned as measurements. They are the activities valued by the customers in the target market. Reduce the cost of airplane maintenance. through the mock benchmarking activity that is documented in Table 9. 2.

This is accomplished by ﬁrst analyzing the passengers’ perceived level of satisfaction with the solutions currently offered by Southwest’s two hypothetical competitors. Let’s assume that the satisfaction values for the two competitors are accurately represented in Table 9.
.5 Using Predictive Metrics as a Basis for Competitive Analysis
Let’s assume the data shown in Table 9. The satisfaction values would be obtained through the same market study that is conducted to quantify the importance and satisfaction values of the passengers’ desired outcomes and to complete the Outcome-Based Segmentation study. The data also suggests that neither organization occupies what would be considered a unique and valued competitive position. It also knows how well each valued activity is being performed by its competitors.150
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Table 9. The data shows the strength of Competitor 1 lies in its ability to reduce the costs associated with ticketing. it may objectively decide how well each activity must be performed to achieve a unique and valued competitive position. Determining Which Level of Performance to Achieve Once an organization knows what activities its target customers value and the strengths and weaknesses of its competitors. The data indicates the competitors are not involved in performing many other activities in a way that is unique to their organization. This information is critical to the formulation of an effective strategy and offers a basis for making strategic choices and decisions. the organization knows what activities its target customers value.6. At this point in the process. The strength of Competitor 2 lies in its ability to reduce the time required to go between mid-size cities and large cities.5 is correct.

its successful implementation often enables an organization to attain a unique and valued competitive position. an organization must be able to successfully determine:
. The values indicate the levels of performance that Southwest believes must be achieved before the satisfaction levels are increased to the point where a unique and valued competitive position is attained.7 for Southwest represent the competitive position they set out to achieve. Southwest could have determined which activities were most important to its target customers and chosen to excel at those activities—capturing its desired competitive position. To consistently occupy a unique and valued competitive position. If such a strategy can be formulated. stakeholders and employees. Notice the levels of improvement that were desired for each of the valued activities. once the target values are set. Many of the activities required performance improvements of between 50% to 100% for them to obtain the competitive position they wanted to occupy. It should be emphasized that in a real world situation.Executing Concepts of Strategy Table 9. They may ask. It is this degree of improvement that is often required to obtain a unique and valued competitive position. They uncovered a unique and valued competitive position and chose to excel in a set of activities that are different than those aggressively pursued by their competitors. Based on the target values stated. Let’s assume that the target values shown in Table 9. assume they set the target values stated in Table 9. When formulating a strategy. the objective is to discover or create the strategy or solution which will enable the organization to achieve the target values that deﬁne the desired competitive position. there are hundreds of activities that are associated with the operation of an airline. ‘‘What target values must we set and achieve before we believe a unique and valued competitive position is secured?’’ As they deﬁne their desired competitive position.6 Quantifying Levels of Satisfaction
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Southwest Airlines is now able to use this satisfaction data and the benchmarking data to determine how well each activity must be performed to increase the level of customer satisfaction to the degree that is required to secure a unique and valued competitive position.7. The target values deﬁne the level of performance that must be achieved to occupy that position. it could be concluded that Southwest Airlines decided to create a leadership position in each of the activities that were highly valued by its passengers.

. and what actions should be taken. 3. What potential target markets exist and which segments to target. A unique and valued competitive position is a prerequisite to an effective company strategy. an organization must have the structure. As stated by Michael Porter.
STRATEGY AS MAKING TRADE-OFFS IN COMPETING Michael Porter also states that ‘‘the creation of an effective strategy requires that an organization be able to make all the required trade-offs. vis-a-vis com` petitors.7 Setting Target Values to Achieve the Desired Competitive Position
1. 4. How well each activity is currently performed by competitors.
This process enables an organization to successfully achieve each of these objectives. and achieving such a position is undoubtedly an objective of most organizations.’’ To achieve this objective. What activities are valued by that set of target customers. What level of satisfaction must be achieved for each activity to occupy a unique and valued competitive position. 2.152
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Table 9. ‘‘The essence of strategy is choosing to perform activities differently than rivals do. to determine what activities should be pursued.’’ This demonstration was intended to show how this process can be used to choose these activities and determine the degree to which they must be performed to achieve a unique and valued competitive position.

By deﬁnition. We will ﬁrst describe the methods that are used to assist an organization in determining what activities to pursue.
. Trade-off logic is used to ensure that the chosen strategies and solutions drive the satisfaction of important and unsatisﬁed desired outcomes at the expense of satisfying less important or already satisﬁed desired outcomes. the desired outcomes that are less important or already satisﬁed receive a lower priority. As stated by Michael Porter. by deﬁnition. making the right trade-off decisions becomes academic. Once all the required information is available. an organization must know what desired outcomes are valued. The activities to pursue are directly related to the predictive metrics that are deﬁned for each desired outcome. to make effective trade-off decisions. This ensures the desired outcomes that are most important and least satisﬁed receive the highest priority. Choosing What Activities to Pursue It was shown in the last section how this process could be used to determine what activities to pursue. which desired outcomes are not valued and how well each desired outcome is currently satisﬁed. a predictive metric is descriptive of a valued activity. As demonstrated in the last section. when using this process. We will then describe the methods embodied in this process that enable an organization to determine what actions to take. but it cannot do both without bearing major inefﬁciencies. It must also know the interrelationships that exist between desired outcomes and predictive metrics. ‘‘a trade-off. An airline can choose to serve meals—adding cost and slowing turnaround time at the gate—or it can choose not to. means that choosing more of one thing will necessitate less of another. This advanced strategy formulation process is speciﬁcally designed to assist an organization in making these difﬁcult trade-off decisions. This leads to the identiﬁcation of the high priority activities. Three examples of the trade-off logic that is employed in this process to ensure the most appropriate activities are identiﬁed and described as follows:
1.’’ Making the right trade-off decisions in a speciﬁc situation often determines an organization’s ultimate success or failure. The actions that are taken by an organization constitute the plan of action or strategy that has been formulated. More speciﬁcally. The logic and algorithms embedded into the execution of this process are designed speciﬁcally to enable an organization to identify which activities to pursue. many trade-off decisions were required. interrelated trade-off decisions. desired outcomes are prioritized using what we have deﬁned as the Opportunity Calculation. The logic associated with choosing the best activities to pursue must be employed throughout the execution of an effective strategy formulation process.Executing Concepts of Strategy
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information and processing power that is required to make a series of complex. In making that determination. and which metrics predict the satisfaction of the most important desired outcomes. Conversely.

2. Trade-off logic is used also to drive the performance levels required to obtain a competitive advantage at the expense of achieving target values that produce a metoo competitive position. This trade-off logic is employed when target values that deﬁne the desired competitive position are set for the top predictive metrics.154
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2. Its application requires an organization to deﬁne the relationships that exist between the predictive metrics and the desired outcomes and to prioritize the predictive metrics using the methods described in Appendix B.
.
This is an example of the trade-off logic that is embodied in this strategy formulation process to ensure an organization selects the best activities to pursue. 3. It is automatically applied as the process is executed.
Choosing What Actions to Take How did Southwest Airlines know they should eliminate baggage transfers. The target values are designed to speciﬁcally prevent an organization from formulating a strategy or solution that will leave them in a me-too or otherwise unfavorable competitive position. connections to other airlines and meals? Why did they decide to have a standardized ﬂeet of 737 aircraft? What trade-off logic did they use? Could it be that they were attempting to formulate an overall strategy that would enable them to achieve the target values they set for each of the high priority predictive metrics? Before an organization can determine what actions to take. or which strategy to pursue. The application of this logic ensures an organization will make the right trade-off decisions when choosing which activities to pursue. This logic is employed when the predictive metrics are prioritized. desired outcomes. The high priority metrics. Which segments to target. typically predict the satisfaction of multiple desired outcomes. 4. This trade-off logic ensures the activities that deliver the most value are uncovered in priority order. The metrics that do not have synergy obtain a low priority. Trade-off logic is used to drive the pursuit of activities that satisfy many important desired outcomes at the expense of pursuing activities that satisfy only one important. Knowing which activities to pursue and the degree of performance required drives the creation of strategies and solutions that yield a competitive advantage. or several relatively unimportant. This leads to the direct identiﬁcation of the high priority activities. To what level of satisfaction each activity must be performed to achieve a unique and valued competitive position. What activities are valued by that set of target customers. those with synergy. 3. How well each activity is currently performed by its competitors. it must know:
1.

Assume they were chosen because Southwest believed that by taking those actions they would be able to achieve the mock target values that deﬁned a unique and valued competitive position. This logic is employed when the actions are prioritized. A strategy is a plan that describes the actions an organization will take to create value for the organization and its customers. Notice that several of the actions chosen helped them achieve the target values that were set for more than one activity. the elimination of baggage transfers reduces the cost of interacting with other airlines. are described as follows:
1. Trade-off logic is used to drive the pursuit of actions that enable valued activities to be performed at the expense of less valued activities. 3. Trade-off logic is used to drive the pursuit of actions that honor the stated constraints at the expense of all other criteria. This leads to the direct identiﬁcation of the high priority actions. Trade-off logic is used to drive the pursuit of actions that enable the achievement of the target values set for many highly valued activities at the expense of achieving the target value set for only one valued. or several relatively unvalued. The actions that do not have synergy obtain a low priority. which is employed in this process to ensure the best actions are chosen. this is a strategy formulation process. Let’s assume that Southwest chose to take the actions that are stated in Table 9. After all. It is important to notice how the actions stated in
. Let’s look at how this trade-off logic could have helped Southwest choose which actions it should take to create value for its stakeholders.
These are examples of the trade-off logic that is embodied in this strategy formulation process to ensure the efﬁcient selection of what actions to pursue. Once this information is obtained. For example. typically drive multiple metrics toward their stated target values. those with synergy. and it also increases the percent of departures that leave on time. it can be used as the basis from which to make the trade-off decisions that are required to determine which actions to pursue. and the actions to pursue deﬁne the chosen strategy. The high priority actions. activities. This is made possible because the actions have a numerical value associated with them and can be prioritized using that value. The logic and algorithms embedded into the execution of this process are designed speciﬁcally to enable an organization to identify which actions to pursue. This is accomplished by eliminating from consideration the actions that do not honor the stated constraints. 2.8. These actions have synergy with multiple activities. employees and customers. It is applied automatically as the process is executed. This process is designed to uncover those actions.Executing Concepts of Strategy
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It has been demonstrated how this process can be used to obtain this information. That value is tied back to the normalized importance value associated with the metric for which the action was deﬁned. Three different examples of the trade-off logic. The same methods that are used to prioritize the predictive metrics are used to prioritize the actions or features that are uncovered.

The actions describe the features or the elements of the chosen strategy. Determining which actions are required to drive the corresponding predictive metrics to their stated target values is the essence of strategy formulation. or predictive metrics. They avoid large airports and do not ﬂy great distances. Making these choices enabled them to achieve the target values that deﬁned what they believed to be a unique and valued competitive position.8 Actions That Enable the Target Values to Be Met
the column on the right drive the corresponding activities. low cost. point-to-point service between mid-size cities and secondary airports in large cities. Southwest’s overall strategy is to offer short-haul.156
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Table 9. to their stated target values.
. The collective set of actions form the chosen strategy.

They create the need for choice and purposefully limit what a company offers. ‘‘Which activities predict the satisfaction of each desired outcome? To what degree will these activities predict the satisfaction of each desired outcome?’’ The predictive met-
. and the synergy between them must yield a sustainable competitive advantage. When using this advanced strategy formulation process. an organization can effectively determine which activities have a synergy with each desired outcome.’’ This advanced approach to strategy formulation enables an organization to effectively make the trade-offs that are required to determine what activities they should pursue and what actions they should take. reinforce and optimize one another. ‘‘Strategy is making trade-offs in competing. This is accomplished through the use of matrix analysis. It assists organizations in making the trade-off decisions that are required to achieve a sustainable strategic position.’’ In other words. These same choices reinforce Southwest’s low cost positioning and optimize its ability to increase the number of hours per day each aircraft is in ﬂight. complement. Their choice to eliminate meals. STRATEGY AS CREATING FIT AMONG A COMPANY’S ACTIVITIES Michael Porter states. for example.Executing Concepts of Strategy
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Deﬁning the fewest number of actions that will enable an organization to satisfy its customers’ most important desired outcomes is the prime objective of strategy formulation. this set of relationships is determined when uncovering the synergy that exists between each predictive metric and each desired outcome. As stated by Michael Porter. These trade-off decisions can be made effectively using the trade-off logic that is integrated into this strategy formulation process. The activities pursued by Southwest Airlines.’’ To create a ﬁt among a company’s activities. Executing a system of interlocked activities is more likely to result in a sustainable competitive advantage than specializing in the execution of a single activity. Trade-offs are essential to strategy. reinforce and optimize the value delivered by other activities. reinforce and optimize one another. The questions are asked. ‘‘The creation of an effective strategy requires that an organization be able to ensure its selected strategic activities ﬁt together to create a distinctive and sustainable competitive advantage for the organization. interline baggage transfers and seat assignments complement each other in ensuring ontime departures are achieved. As stated by Michael Porter. ‘‘positions built on systems of activities are far more sustainable than those built on individual activities. This method is detailed in Appendix B. an organization must be able to effectively determine which activities complement. Deﬁning these actions requires hundreds of trade-off decisions. the activities that an organization chooses to take must ﬁt together such that they complement. When using this process.

One activity may assist in the execution of several other activities. In essence. They represent the weighted importance
. The predictive metrics are shown along the top. The values in the right-hand column are associated with each desired outcome. In other words. will partially or completely assist in the execution of other activities.1 helps to explain how matrix analysis is used to prioritize the predictive metrics that have been deﬁned in the Southwest example. They constitute the activities that most effectively drive the creation of value. the high priority predictive metrics represent a complex array of interlocked activities that complement. The top activities may assist in the execution of up to 70% of the other activities. when executed.1 Relationships Between Predictive Metrics and Desired Outcomes
rics with the most synergy are those that predict the satisfaction of several important desired outcomes. The high priority metrics deﬁne the activities that. Figure 9. and the desired outcomes are shown in the column on the left. will result in a sustainable competitive advantage. This is what is meant by synergy.158
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Figure 9. if action is taken. The symbols in the matrix indicate where relationships exist and the strength of the relationship. the high priority predictive metrics represent activities that. reinforce and optimize the other activities.

The activities with the highest normalized importance values contribute most to the creation of customer value. 2. This number is calculated using the mathematical calculation described in Appendix B. ADDRESSING THE EXPECTATIONS OF STRATEGY In addition to enabling the achievement of the three important strategic objectives stated above. It enables top management to communicate the customers’ desired outcomes and
. organizations ‘‘need a new process for strategy-making. ‘‘The success of a strategy depends on doing many things well—not just a few—and integrating among them.’’ The CD-MAP process provides the structure. Systematically evolve the processes.’’ This advanced strategy formulation process is designed to enable an organization to deﬁne the activities that have ﬁt and attain a strong strategic position. They are the metrics or activities with synergy. The values in the bottom row. reinforce and optimize one another. Up to 300 predictive metrics are typically prioritized when applying this process to real world situations. services and strategies that affect their organization.
As stated by Gary Hamel and C. If there is no ﬁt among activities. there is no distinctive strategy and little sustainability. reinforce and optimize the satisfaction of the most important desired outcomes. products. 4. Develop strategies and solutions that deliver many times more value than those previously created. if pursued. to some degree. one that is more exploratory and less ritualistic. They need to apply new and different resources to the task of strategy-making. The high priority metrics predict. As stated by Michael Porter. planning and decision-making capabilities. K. Increase the rate at which they create value for themselves and others. 5. will complement. the satisfaction of multiple desired outcomes. information and processing power that is required to formulate breakthrough strategies and solutions. Evolve their strategy formulation. Notice that the high priority predictive metrics deﬁne the activities that complement. They partially or completely assist in the execution of multiple activities. Understand their customers’ perception of value. relying on the creativity of hundreds of managers and not just on the wisdom of a few planners. The high priority predictive metrics deﬁne the system of interlocked activities that can be pursued to create a distinctive and sustainable competitive advantage. 3. the normalized importance row. reﬂect the percent of value contributed by each activity. the process also enables organizations to:
1. Prahalad in Competing for the Future (1994).Executing Concepts of Strategy
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of each desired outcome. Knowing which of those 300 predictive metrics have the most synergy with the desired outcomes enables an organization to determine which activities.

Individuals from across the organization can use this information to ﬁnd the best strategies and solutions for a given situation. 2. In his article titled ‘‘What Is Strategy?’’ (1996). For example. It takes the mystery out of strategy and enables organizations to put into practice the theories that are supported by well-respected strategists. He states that ‘‘an effective strategy must enable an organization to:
1. external consultants can be used and advanced technology can be used to make this process an integral part of the organization. Make all the required trade-offs. which technologies to pioneer. It enables individuals to focus on the achievement of the organization’s strategic objectives. it can be shown how this process is often used to address the important elements of strategy formulation as they are deﬁned by one of today’s leading strategists—Michael Porter. vis-a-vis competitors. In short. to determine what activities ` should be pursued and what actions should be taken. The tools are designed to enable users to quickly formulate the strategies and solutions that will satisfy the largest number of important desired outcomes while honoring any imposed constraints and enabling the achievement of the desired competitive position. which activities to pursue and which tradeoffs to make. 3.’’
. Uncover a unique and valued position that involves a set of activities that are different than those taken by competitors. the tools that have been developed to support the application of this process can be used to create an integrated knowledge network. consultants and academics. the process driving the Intellectual Revolution provides all organizations with the power to systematically accelerate the creation and delivery of customer value. SUMMARY This process enables organizations to think and act strategically. Such a network is capable of enabling an organization to deﬁne and organize the universe of possible solutions from which individuals throughout the organization can invent and discover. This process is driving an Intellectual Revolution in business—a revolution in which all organizations are empowered (have the power) to anticipate future opportunities. Internal consultants can be trained. make value-generating investment decisions and determine which products and services to develop.160
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the metrics that predict the delivery of value to employees throughout the organization. which core competencies to obtain. Ensure the activities that are taken to execute the strategy ﬁt together to create a distinctive and sustainable competitive advantage for the organization. Michael Porter describes what an effective strategy must deliver. As an example. This process can be integrated into an organization in many ways. It enables hundreds of managers and other individuals to participate in and contribute to the formulation of breakthrough strategies.

or several relatively unvalued.
The third strategic objective involves choosing to execute activities that ﬁt together to create a distinctive and sustainable competitive advantage for the
. it is organized within the structure of the USFM. 2.Executing Concepts of Strategy
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To achieve the ﬁrst strategic objective. What activities are valued by that set of target customers. The second strategic objective involves making the trade-off decisions that will enable an organization to determine what activities to pursue and what actions to take. 3.
This advanced strategy formulation process is often used to obtain the answers to each of these complex questions. Enable valued activities to be performed at the expense of less valued activities. 4. 2. or several relatively unimportant. 2. The trade-off logic employed for this purpose is used to drive the pursuit of actions that:
1. Honor the stated constraints at the expense of all other criteria. Drive the pursuit of activities that satisfy many important desired outcomes at the expense of pursuing activities that satisfy only one important. desired outcomes.
Advanced trade-off logic is also integrated into this process to enable an organization to determine what actions to pursue. In addition. 3. What potential target markets exist and which segments to target. Enable the achievement of the target values that have been set for many highly valued activities at the expense of achieving the target value set for only one valued. Once the information is obtained. Drive the performance levels required to obtain a competitive advantage at the expense of achieving target values that produce a me-too competitive position. activities. Ensure that the chosen strategies and solutions drive the satisfaction of important and unsatisﬁed desired outcomes at the expense of satisfying less important or already satisﬁed desired outcomes. Advanced trade-off logic is integrated into this strategy formulation process to enable an organization to determine what activities to pursue. 3. How well each activity is currently performed by competitors. The trade-off logic that is employed is used to:
1. an organization must be able to successfully determine:
1. an organization can be assured that its chosen strategy will involve a set of activities that are different than those taken by competitors. What level of satisfaction must be achieved for each activity to occupy a unique and valued competitive position. The information is then used to systematically formulate a strategy that places the organization in a unique and valued position. through the use of this process.

reinforce and optimize one another as they predict the creation and delivery of customer value. When executing this advanced strategy formulation process. the prioritized set of predictive metrics effectively deﬁnes the array of interlocked activities that complement. It is the catalyst that is driving an Intellectual Revolution in business. can be employed through the use of this process.162
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organization. consultants and academics. We have found that many of those theories. This advanced strategy formulation process can be used to put into practice the theories that are supported by many well-respected strategists. Prioritized predictive metrics drive the creation of a distinctive and sustainable competitive advantage. if sound. Although Michael Porter’s view of strategy dominates much of today’s thinking. many other theories exist.
.

2. antidotes. The criteria are deﬁned to ensure all pertinent customer types and segments are represented. its products and services and its operating.
Customers unintentionally make it difﬁcult to capture desired outcomes. The
. stories or other types of information. Recognizing that you are attempting to capture desired outcomes—not solutions.Appendix A
Capturing and Prioritizing Desired Outcomes
CAPTURING DESIRED OUTCOMES Two of the most important factors associated with capturing customer desired outcomes are:
1. The criteria that are to be used to select the customers are typically generated by a company consultant or by someone within the organization. The participants are evaluated by that ﬁrm to ensure the individuals meet the speciﬁed screening criteria. Desired outcomes are captured in sessions that are conducted with customers who are involved in or affected by the speciﬁed mission. The third-party ﬁrm also often provides the facility at which the interviews are conducted. A third-party research ﬁrm that specializes in recruiting is often used to recruit the individuals who will participate in the session. vague statements. The customers may be internal or external customers depending on the mission that is being undertaken. Desired outcomes can be captured on a company. We have developed the techniques that are required to capture desired outcomes even when customers offer statements that begin as solutions or vague statements. because they are typically focused on solutions. Distinguishing between desired outcomes and solutions. support and management processes.

it is addressed at that time. or solicit for business or give the company a good spin. NLP is a behavioral science that is focused on modifying human response in a speciﬁc situation. 6. As part of this science. We have studied the techniques that are used to capture a patient’s desired outcomes and have modiﬁed them for use in capturing desired outcomes from customers. 5. Stable over time. the individuals undergoing treatment must convey their desired outcomes to a psychologist. Although the environment is much like that of a traditional focus group. Descriptive of what is desired. 2. One point should be made clear. Everything we do is focused only on capturing their desired outcomes. Capable of being measured. Desired outcomes are captured from individuals within the group in real time. Each statement is scrutinized to ensure it meets a strict set of criteria. They are not there for us to entertain. The solutions and vague statements that are initially received are used as a starting point from which to uncover the actual desired outcomes. The participants are aware that we are attempting to capture requirements in a speciﬁc format and that we may have to ask probing questions to get the information in the format we need it.164
Appendix A
sessions are typically video recorded and taped. The person gathering the desired outcomes typically types the customer’s initial statements into a notebook computer and then begins the process of transforming them into desired outcomes.
. 4. Free from any solutions and speciﬁcations. We then explain how the session will be conducted. As the session begins. the interviewer is ensuring that each desired outcome is:
1. the interviewer reads the desired outcome back to the participants for clariﬁcation. that is where the similarities end. We typically pay the participants anywhere from $75 to $250 to be there. the participants are introduced to the subject matter and are asked to introduce themselves. If a desired outcome is not correct. 3. The participants may be asked how a speciﬁc solution beneﬁts them or why a stated solution is important. Free from any vague words or ambiguous statements. The advanced methods for gathering desired outcomes are based on a special application of Neuro Linguistic Programming (NLP). Focused on the subject of interest. As the statements are transformed into desired outcomes. A session typically involves up to 10 participants and a desired outcome gathering expert. and they are there for one purpose—so we can capture their desired outcomes— period. The session concludes with a list of desired outcomes that all the participants agree represent what they would like to achieve from the strategy or solution that is being formulated. veriﬁcation and acceptance.
Once a desired outcome is captured in the required format.

discovered how this statistical principle applies to requirements gathering. The total number of unique desired outcomes collected to that point is now up to 39. Their research was documented in an article titled ‘‘The Voice of the Customer’’ (1993). At the second session. for example. then desired outcomes on the process of distributing a storage system or on the sales representative selling the storage system are not accepted at that time. This diversity ensures that even the most obscure desired outcomes will be captured. new desired outcomes will not be uncovered. virtually all the desired outcomes that can be captured will be captured. when you interview 30 individuals. John Hauser. are interviewed. multiple sessions are conducted. It is this principle that guides the number of interviews that are conducted when we capture the customers’ desired outcomes. It is important that we capture all the desired outcomes associated with a speciﬁc mission. shows the percentage of desired outcomes that are captured as more interviews are conducted. but 21 of them may be the same as the desired outcomes captured in the ﬁrst session. we do not have to capture thousands of desired outcomes. representing diverse aspects of the subject of interest. Statistically speaking. 30 desired outcomes may also be captured. 30 desired outcomes
. if the objective is to capture desired outcomes on the process of storing and retrieving data. then no matter how many additional individuals are interviewed. To ensure all the desired outcomes are captured. a professor from the University of Chicago. in real time. From a statistical perspective. over 96% of those desired outcomes can be captured using the techniques that we have developed. In the third session. The objective of each session is to capture all the desired outcomes that the customers have on the subject of interest. Figure A. There is no need to get new or more requirements months later. statistically speaking. For example. We have discovered that there are a ﬁnite number of desired outcomes on any subject and that. with the customers during the session. This will ensure that opportunities are not missed. if a large enough sample of individuals. Fortunately. Each session is represented with individuals who have diverse views such that their experiences. and Abbie Grifﬁn. It is important to note that desired outcomes are captured on one subject at a time.1. There is no need for the organization to second-guess what the customers really meant. a professor at MIT. which summarizes their work. user environments and demographics represent both extreme and mainstream views. This approach to requirements gathering enables organizations of all sizes to capture their customers’ desired outcomes.Appendix A
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The techniques that we use to gather desired outcomes are more efﬁcient. as the desired outcomes are complete and are stable over time. Up to 70% of all the desired outcomes that will ever be captured on a subject are typically captured in a single session. 30 desired outcomes may be captured at the ﬁrst session. If four sessions are conducted. faster and less costly than methods that are traditionally used to capture customer requirements. They eliminate the need to go back to the individual for clariﬁcation as the desired outcomes are veriﬁed.

do not apply to the collection of solutions. In total. Traditional methods are used to acquire this information. The desired outcomes are mutually exclusive and collectively exhaustive. 30 desired outcomes may also be captured. Based on the projects we have completed.1 The Statistical Foundation for Gathering Desired Outcomes
may also be captured. We will describe the traditional methods that are used and then highlight the unique methods that we apply to obtain the required information without incurring excessive costs. let’s describe how the traditional quantitative market research is conducted. They are as follows:
1. but 27 of them may have been captured in the previous two sessions.166
Appendix A
Figure A. This process consists of several steps. First. The 42 desired outcomes that may be collected represent all the desired outcomes that exist on that subject of interest for that customer type. The customer types are deﬁned. It is important to note that there are a ﬁnite number of desired outcomes on any subject of interest. but we do apply several techniques that are somewhat unique to the ﬁeld of market research. but it would not be surprising if each of them were already captured in one of the previous three sessions. It is often the case that more than one customer group
. It is also important to note that there are not a ﬁnite number of solutions that will exist over time. The statistical principles described above. The number of desired outcomes now totals 42. In the fourth and ﬁnal session. The organization must determine who the customers are given the speciﬁed mission. 42 or so desired outcomes may be captured. we use traditional quantitative research methods to quantify the importance of each desired outcome and to determine the degree to which each outcome is currently satisﬁed. PRIORITIZING DESIRED OUTCOMES Once the desired outcomes are captured. that number typically ranges between 25 and 50 desired outcomes for a given customer group. New solutions will be created over time as new ideas and technologies become available. therefore.

A research sample is designed to ensure each customer type is interviewed in the appropriate proportions. boaters. computer users. company stakeholders and the manufacturer of a storage system may be identiﬁed as customers when formulating a strategy to improve a data storage device. 3. 6. For example.000 interviews to obtain information with the accuracy that is needed to effectively
. 7. up to ﬁve times as many interviews must be conducted. For this application. then three surveys are executed. The customer segments from which data will be captured are deﬁned in advance of administering the questionnaire. it is just not true. or increase the conﬁdence interval to 95%. The information is input into a database so the data can be viewed in the desired format. If three customer types exist. The questionnaires are administered. We do not conduct mail-out research or any other form of research where the identity of the respondent is uncertain. The results of the ﬁeld-work are coded. This can more than triple the cost of the research. For example. The size of the sample does not have to be very large to achieve these objectives. To reduce the error rate to plus or minus 3%.000 interviews to obtain valid data. factory workers and on-the-road executives to prioritize the desired outcomes they may have while communicating in transit. 2. They are typically administered by a third-party research ﬁrm and are conducted via a phone or a phone/fax interview. A questionnaire is prepared for each customer type. We do not need 1.Appendix A
167
is considered when contemplating a strategy. Approximately 60 to 540 interviews are completed for each customer type. 4. the computer users rate only the computer users desired outcomes. Each customer type is asked to rate the importance and satisfaction for each of their desired outcomes. stakeholders rate only the stakeholders desired outcomes and so on. tabulated and prepared for delivery to the organization sponsoring the research. The sample design must consider the overall size of the sample and the number of interviews that will be conducted in each cell or target segment. For example. a portable cell phone manufacturer may want policemen. We are simply trying to ﬁnd out which desired outcomes are most important and least satisﬁed. plan or decision.
One discovery that we made while executing many strategy formulation projects is—contrary to what most market research ﬁrms will tell you—an organization does not have to conduct a large number of interviews to obtain the information that is needed to formulate a breakthrough strategy. An organization may want several potential target segments to prioritize the importance of a speciﬁc set of desired outcomes. The number of interviews required is based on the objective of obtaining an error rate of plus or minus 6% at a 90% conﬁdence interval for each data point. 5. A third-party research ﬁrm typically completes this activity. Many research ﬁrms will convince you that you have to complete over 1. They only rate the importance of their desired outcomes. A minimum of 30 interviews per cell is required if variance is to be explained using normal distribution.

then we will likely formulate a breakthrough solution. For purposes of discriminating between the most and least important desired outcomes. For example. we apply a technique developed to assist in ensuring that we obtain excellent discrimination between what is most and least important. while ensuring that we are focused on what is clearly most important to those being surveyed. Once we have the raw data. Once we receive the data from the research ﬁrm. We wanted to be able to prioritize the desired outcomes based on the amount of opportunity that was associated with each one. We developed a calculation. then we give the desired outcome a rating of 2. we want to know where the greatest areas of opportunity lie.9 is derived simply by dividing 89% by 10 to place it on the 1 to 10 scale. it was somewhat difﬁcult ﬁnding a mathematical equation that could be used to quantify opportunity.2. The 8. you quickly reach a point of diminishing returns. Although it is obvious that opportunity exists when a desired outcome is important and unsatisﬁed.168
Appendix A
Figure A. Many organizations use means or averages— this usually produces poor discrimination. We know that if we can formulate a strategy or solution that will satisfy desired outcomes that are both important and unsatisﬁed. if 89% of those surveyed rate the importance of an outcome a 4 or a 5—top two boxes—then we give that desired outcome a rating of 8. If only 23% of those interviewed rate the importance of an outcome a 4 or a 5. The sample size must increase geometrically to obtain small improvements in accuracy. We take the percentage of individuals who rate a desired outcome a 4 or a 5—very important or critically important— and use that number in our rating. When adding more interviews. a larger sample size is not necessary. This technique enables us to obtain excellent discrimination along a 10-point scale.3. This law of diminishing returns is illustrated in Figure A. We have developed one other technique that has assisted us in formulating breakthrough strategies and solutions.9—placing it on a scale of 1 to 10. called the Opportunity
.2 Diminishing Returns with Increasing Sample Size
execute this process.

The equation is:
Importance Rating (Importance Rating Satisfaction Rating)
So. cluster analysis is often performed using the desired outcome numerical importance value as the basis for clustering. the clustering program analyzes the importance ratings that each individual has given each desired outcome. In the end. This technique is very effective in determining where the organization should focus to create the most value for the company and its customers. In essence. the research methods are both powerful and cost effective.3. 3. The individuals in segment 2 may value desired outcomes 2. As illustrated in Figure A. This often greatly simpliﬁes the formulation of company. the ratings a respondent gives to all the desired outcomes will give that respondent a numerical position in multi-dimensional space. Computer software programs such as SPSS and SAS.Appendix A
169
Calculation. are used to perform this operation. for example.
USING DESIRED OUTCOMES AS A BASIS FOR SEGMENTATION When executing this strategy formulation process. 9. As a result. The individuals positioned closely together form a cluster. which support cluster analysis. Individuals within each cluster have a homogeneous set of desired outcomes. the individuals in segment 1 above may value desired outcomes 1. It places the respondents that value the same desired outcomes into a cluster. all the individuals that are in a cluster are there because they rated the importance of the desired outcomes similarly. All the research techniques used in this process have been developed and reﬁned to speciﬁcally ensure the effective execution of the Universal Strategy Formulation Model (USFM). The calculation ensures that the high priority desired outcomes are those that are the most important and least satisﬁed. it enables an organization to ﬁnd or segment customers that value the same desired outcomes. 15. More speciﬁcally. it would receive a higher priority than an outcome that had an importance rating of 5 and a satisfaction rating of 4. This analysis is conducted to enable an organization to uncover market segments that are homogeneous. if a desired outcome had an importance rating of 5 and a satisfaction rating of 2. When instructed to perform cluster analysis. it ﬁnds and groups respondents that value the same desired outcomes. The scores would be 8—5 (5 2) for the ﬁrst outcome—versus 6—5 (5 4) for the second outcome.
. Different desired outcomes are valued in each of the clusters. For example. Several clusters may exist—in fact the user can specify the number of clusters. product and service strategies. 27 and 36. 7. that enables the effective prioritization of desired outcomes based on opportunity. 24 and 31.

provides a means by which to determine the similarities and differences of individuals within a market. Outcome-Based Segmentation. Exercising this aspect of the process provides an organization with a tremendous competitive advantage in the way they create. Customers within each segment are willing to pay a premium for that solution as it satisﬁes their unique desired outcomes. market and position their products. In addition. In addition. services and other solutions. When applied to product and service development.170
Appendix A
Figure A. The solutions that are required to satisfy the unique desired outcomes in each cluster may be different. It drives the creation of a low-cost platform product that addresses the desired outcomes important across the total market.3 Segments Generated Using Cluster Analysis
It is for this reason that they form separate clusters. distribution or other purposes. it enables an organization to develop segment speciﬁc solutions. it does not interfere with traditional segmentation schemes that may be used for ﬁnancial. This concept is illustrated in Figure A. Outcome-Based Segmentation enables an organization to determine which desired outcomes are valued across all market segments and to discover which desired outcomes are uniquely important to speciﬁc segments. It also enables an organization to develop unique offerings that address segment speciﬁc desired outcomes. An ability to focus in this manner brings economies of scale and proﬁt to a manufacturing or development organization. This platform product or service may be offered across all segments as a low-cost entry solution. This technique can lead to the creation of low cost product or service platforms that address the desired outcomes common to all market segments. This technique has been used by organizations to create and position products and services that meet the unique desired outcomes of customers in different market segments. as we call it. This methodology provides organizations with many advantages when creating and positioning its products and services.4 for a situation in which three segments exist.
.

4 Market Segmentation in Product and Service Development
171
.Appendix A Figure A.

.

The number of relationships a predictive metric has with the desired outcomes.
The ﬁrst three factors are combined into what is called a normalized importance calculation. to any degree. The normalized importance of each metric is determined through the use of both matrix analysis and a mathematical formula. The weighting given to each customer type in the customer set to offset the differences in the number of desired outcomes that have been captured for each customer type. the satisfaction of each desired outcome. This analysis is completed for each customer type in
.Appendix B
Prioritizing Predictive Metrics
As part of executing the Universal Strategy Formulation Model (USFM). 3. The order in which they are prioritized is dependent on several factors. a list of prioritized predictive metrics are used to achieve a variety of strategic objectives. 4. Each metric is analyzed to determine if it predicts. this is a numerical value between one and nine. The weighting given to each customer type in the customer set reﬂecting the extent of the role played by that customer type. then a predictive value is assigned. They include:
1. Matrix analysis is used to establish the predictive relationships that exist between each predictive metric and each desired outcome. Other relationships receive values between 1 and 9. The strength of each relationship. A weak relationship receives a numerical value of 1 and a strong relationship receives a value of 9. If a predictive relationship does not exist. The numerical importance value assigned to each desired outcome with which the predictive metric has a relationship. 2. 5. If a predictive relationship does exist. then a value is not assigned.

The sum of the row is then 9 3 3 or 15. The use of the normalized importance calculation establishes a normalized importance value for each predictive metric. The calculation is best explained with the use of the information provided in Figure B. For example. which has a predictive value of 9. the normalized importance value represents the percent of desired outcomes whose satisfaction is predicted by that metric. the ﬁrst desired outcome has a strong relationship with metric 1.25.500 relationships per customer matrix.174 Figure B. The sum of the row for Desired
.25% of the total number of desired outcomes is predicted by that one metric. This value represents the amount of synergy that is associated with that metric. the analysis often requires the assessment of 2. This value is obtained by summing all the importance ratings of the desired outcomes—5 4 5 3 17—and dividing the importance rating for each desired outcome by the total. The Percent Importance column contains the weighted importance of each desired outcome.1. As an example. if a metric has a normalized importance value of 6. For example. Since each customer matrix may contain 50 desired outcomes and 50 predictive metrics. The third column.4. that means the satisfaction of 6. The Importance column contains the importance rating assigned to each speciﬁc desired outcome. To be more speciﬁc. each of which have a predictive value of 3. the ﬁrst desired outcome has a percent importance rating of 5 17 100 or 29. contains the sum of the predictive values for each desired outcome. and a moderate relationship with metrics 3 and 4. The four rightmost columns contain the data that is used to complete the calculation. and is used as the basis by which to prioritize the metrics. Sum of Row.1 Prioritizing Predictive Metrics
Appendix B
the customer set.

Appendix B

175

Outcome 2 is 9 1 or 10. The fourth column contains a value that is calculated by dividing the Percent Importance, the value in Column 2, by the sum of the row, the value in Column 3. The value for the ﬁrst desired outcome, for example, is calculated by dividing 29.4 by 15. This equals 1.96 as shown in Column 4. With an understanding of how the values in the table are derived, let’s now explain how the normalized importance value is obtained. We will ﬁrst calculate the normalized importance value for Predictive Metric 2. The normalized importance value for Predictive Metric 2 is obtained by multiplying the value in Column 4, on the far right, by the predictive value that Predictive Metric 2 has with Desired Outcome 2. This becomes 2.35 9 or 21.15. This is the normalized importance value for Predictive Metric 2. Since Predictive Metric 2 has only one relationship with one desired outcome, the calculation is quite simple. Calculating the normalized importance value for Predictive Metric 1 is slightly more complicated because multiple relationships exist. The normalized importance value for Predictive Metric 1 is obtained as follows. For each desired outcome that has a relationship with Predictive Metric 1, you multiply the value in Column 4 by the predictive value that exists between the metric and the desired outcome. So, because a strong relationship exists between Predictive Metric 1 and Desired Outcome 1, we take 1.96 from Column 4 and multiply that by 9, the predictive value associated with a strong relationship. The product is 17.64. We then execute the same calculation for the other desired outcomes that have a relationship with Predictive Metric 1. For Desired Outcome 3, we multiply 2.67 by 1, the predictive value associated with a weak relationship, to obtain a product of 2.67. For Desired Outcome 4, we multiply 1.47 by 3, the predictive value associated with a moderate relationship, to obtain a product of 4.41. To obtain the normalized importance value we then add the three products together—(1.96 9) (2.67 1) (1.47 3). The result is a normalized importance value of 24.72. The number of products to be added together is dependent on the number of desired outcomes with which the predictive metric has a relationship. Similarly, the normalized importance value for Predictive Metric 3 is obtained by adding (1.96 3) (2.35 1) (2.67 9). This totals 32.26. The normalized importance value for Predictive Metric 4 is obtained by adding (1.96 3) (2.67 1) (1.47 9). This totals 21.78. Once the normalized importance values are calculated for each metric, the values are multiplied by two other factors to obtain the ﬁnal prioritization that is carried forward through the process. The normalized importance values are ﬁrst multiplied by the weighting that is given to each customer type in the customer set to reﬂect the extent of the role that is played by that customer. For example, if two customer types exist in the customer set, one customer may be given a 60% weighting and the other may be given a 40% weighting. The normalized importance values for all the metrics in the customer matrix with the 60% weighting are therefore multiplied by 0.6. The normalized importance values for all the metrics in the customer

176

Appendix B

matrix with the 40% weighting are multiplied by 0.4. This weighting adjusts the importance of the metrics so the most important customer type gains a stronger representation in the formulation of the strategy or solution that will result from the execution of the process. The new values are then multiplied by one more weighting factor. This factor offsets the differences in the number of desired outcomes that have been captured for each customer type. If, for example, one customer matrix has 25 desired outcomes, and the second matrix has only 20 desired outcomes, then all the values for the predictive metrics in the matrix with 25 desired outcomes will be multiplied by .55 (25/45). The values for the predictive metrics in the matrix with 20 desired outcomes will be multiplied by .44; (20/45). This ensures that the results are not skewed due to differing numbers of desired outcomes in a matrix. In a ﬁnal calculation, the resulting numbers are recalculated as a percentage so they add up to 100%. This ensures that the ﬁnal value represents the percent of desired outcomes whose satisfaction is predicted by each metric. This value then dictates the priority that is given to each predictive metric as it is carried forward throughout the process. For more information regarding this subject, please reference the paper published by Robert Hales titled ‘‘Deployment Normalization.’’ It was published in 1990 and is the property of International TecheGroup Incorporated in Milford, Ohio.

Appendix C

Using Predictive Metrics
USING PREDICTIVE METRICS TO DEFINE THE DESIRED COMPETITIVE POSITION One of the most important applications of predictive metrics is to use them to establish the desired competitive position. The desired competitive position is the unique and valued position that an organization desires to achieve relative to its competitors. To achieve the desired competitive position, the chosen solution or strategy must satisfy the customers’ desired outcomes better than any competitive solution. The desired competitive position is established by assigning a target value to each of the high priority predictive metrics. The target values assigned to the predictive metrics deﬁne the level of satisfaction that must be achieved by any proposed solution. Target values are set to deﬁne the desired competitive position and are then used as a guide to drive the creation of solutions that will achieve the desired competitive position. The desired competitive position is not static. It is dynamic. As new ideas and technologies are introduced, it may be necessary to redeﬁne the desired competitive position. The information collected as part of the process is often used by an organization to both deﬁne and maintain its desired competitive position. Target values are often set for multiple points in time to deﬁne the desired competitive position well into the future. This point is illustrated in the following example. Target values for the predictive metrics that came from the hospital administrator in the surgical system example may be stated as in Table C.1 for various points in time. Notice how the target values get more aggressive over time. An organization would like to deﬁne and achieve aggressive target values for the metrics that

178 Table C.1 Target Values over Time

Appendix C

predict the satisfaction of the customers’ most important desired outcomes. Identifying and prioritizing the desired outcomes, deﬁning and prioritizing the predictive metrics and establishing the target values make it possible for an organization to deﬁne a unique and valued competitive position. In practice, the target values are often deﬁned relative to a competitor’s position. This is often done to ensure that the resulting strategy or solution will enable the organization to occupy a competitive position that is superior to that held by its competitors. This technique enables an organization to position itself against its competitors along some meaningful set of criteria, before the strategy or solution is formulated. As an example, documented in the worksheet in Table C.2 are the predictive metrics that came from the hospital administrator. They may be used by Company 1 as the criteria by which to establish a unique and valued competitive position over Company 2. First, a measurement is taken to establish the current competitive position of each company. Next, Company 1 deﬁnes a future target value for each predictive metric. This future value describes the competitive position that is desired by Company 1 relative to Company 2. It describes their desired competitive position. The future target value, once established, guides the quality of the solutions that are considered by Company 1 when they execute the Universal Strategy Formulation Model (USFM). If a proposed solution does not exceed the current value achieved by Company 2, then the company knows that the solution will not be competitive with the Company 2 offering along that dimension. For example, if a proposed solution does not enable the user to set up the system for different operations in less than 45 seconds, then the solution will not have a competitive advantage over the Company 2 offering. If a proposed solution meets the target value set by Company 1 (i.e., 10 seconds), then the company

Appendix C Table C. in the form of predictive metrics. The criteria. product or service after the strategy or solution has already been devised and implemented. the criteria by which a strategy or solution will be judged. The use of Outcome-Based Logic requires that an organization ﬁrst deﬁne the criteria that describes the optimal solution. Using the predictive metrics to assist in the creation of potential strategies and solutions reﬂects the philosophy that is embodied in Outcome-Based Logic. are known to predict the delivery of value as perceived by the customer. Using this process to establish the positioning criteria has several advantages over traditional positioning techniques. they are used to assist in the creation of potential solutions. and then work toward formulating a strategy or solution that will enable it to occupy that position. This reactive approach to positioning is time consuming. and then use that criteria as the basis for creating and
. the organization can use this information to make decisions that will enable it to strengthen its strategic position prior to formulating the strategy or solution. costly and rarely effective. it is known which metrics predict the satisfaction of the majority of desired outcomes. Breakthrough strategies and solutions result more consistently when an organization can ﬁrst deﬁne the competitive position it wants to occupy.2 Deﬁning the Desired Competitive Position
179
knows that the solution will enable it to achieve a desired competitive position along that dimension. Traditional approaches to positioning often require an organization to position a company. USING PREDICTIVE METRICS IN THE CREATION OF STRATEGIES AND SOLUTIONS Once the predictive metrics are deﬁned and prioritized. The potential solutions should drive the predictive metrics to the level of satisfaction required to achieve the desired competitive position. As a result. Because they are in priority order.

To create a potential solution. They said. they realized that it did not impact many of the top predictive metrics. As an example. In practice this proves to be a tremendous beneﬁt. Individuals are able to focus on metrics they know to be important and predictive of success. if we knew the solution had to drive this set of metrics. Individuals sometimes tell us. assume that the predictive metrics (listed in Table C.’’ In one recent consulting assignment. This concept is referenced once again in Figure C. They are willing to take the time to brainstorm solutions that will place the organization in its desired competitive position. when we reached this stage of the process and the team was evaluating a strategy they had conceived before the project had started. ‘‘well.1 Outcome-Based Logic
Appendix C
evaluating potential solutions.. this is only made possible through the execution of this process. we would have deﬁned the strategy differently. If you know what the optimal solution must do. To create a strategy or solution using the metrics as a guide. In executing the CD-MAP process. The time and effort has been put forth to deﬁne and prioritize the criteria that predict the delivery of customer value. They are the criteria that deﬁne the optimal solution and are used to create the optimal solution.3) for a system to improve the process of surgery represent the high priority predictive metrics across the appropriate customer set (i. predictive metrics are used to drive the actual creation of a variety of potential solutions. then it makes sense to use that information in an attempt to create the solution that will make it happen. administrators and the manufacturer).
. a feature is created to address each prioritized predictive metric.’’ That is the whole point. you already know what the optimal solution is supposed to do.180 Figure C. After all. ‘‘this is like cheating. Focusing on just one metric at a time when creating the total solution makes it possible to channel and focus the organization’s collective knowledge and wisdom on one item at a time.e. surgeons. The combination of features becomes the total solution.1. it is best to systematically address each metric in priority order across the total customer set.

Solutions can be systematically created. The total solution can then be packaged and delivered as the optimal solution. preprogrammed settings for procedures. they lack direction and tend to focus on what they believe to be important. The use of this advanced strategy formulation process enables an organization to stay focused on what is most important to the company’s internal and external customers.3. satisfy the one or two customers with whom they have had contact or help them achieve their personal goals. Simply stated. it may not be necessary to deﬁne different features for each of the 30 to 60 metrics. features are often created for the top 30 to 60 predictive metrics. one at a time. using all available resources. until the optimal solution is devised. The company creates features for each metric.Appendix C Table C. They are focused on the efﬁcient and effective creation of customer value. It includes ﬁber optic technology. Some features may impact several metrics and. In a real world example. 10 to 30 features may deﬁne a complete solution. For example. as a result. Because individuals throughout the organization know what to focus on and the value it will provide. The combination of features listed on the right deﬁnes the total solution. The features can then
. they are willing to dedicate their time and energy to executing the strategy formulation process. Individuals tend to brainstorm solutions that address isolated issues. In total. organizations often go off in dozens of different directions not knowing which deserves the most attention. the features designed to address each predictive metric are listed in the column on the right. failure detection and rerouting and self-test capability.3 Deﬁning Solutions That Will Achieve the Target Values
181
When using traditional methods. in Table C. feature by feature.

When evaluating each concept against a baseline concept. Reducing the volume of healthy cells that are contacted during the surgery. It is common to initially create up to six alternative concepts when using this process to formulate a breakthrough strategy or solution. as documented in the example found in Table C. if required. all features included in the concept must be mutually exclusive of the other features. In fact. It should be noted that when creating potential solutions. Other concepts are devised after the alternative concepts have been evaluated. which is deﬁned as the fully evolved or theoretically perfect concept. The features that are deﬁned using this approach are the features that most efﬁciently create value for the organization and its customers. deliver value to the customer set along the stated dimensions. Reducing the time that is required to repair an unexpected failure. The features that are stated will. another feature that is listed as part of that concept. Reducing the time that is required to set up the system for different operations. 3. to determine which deliver the most value. Reducing the time that is required to test the system. the objective is to determine if one solution is better than the other solutions at driving each predictive metric toward the target value that deﬁnes the organization’s desired competitive position. The second method involves comparing each concept against a standard. When conducting an evaluation of a surgical system. or a replacement or substitute for. Concept evaluations are commonly made using one of two evaluation methods. with certainty. 2. The ﬁrst method involves comparing each concept against a baseline concept or one of the stated concepts. the features satisfy many of the other desired outcomes since the high priority metrics often predict the satisfaction of up to 70% of all the desired outcomes. 5. This means that a feature must not be an alternative to. Reducing the number of times and total time the visualization of the ﬁeld is obstructed. 4.
. USING PREDICTIVE METRICS TO EVALUATE SOLUTIONS The prioritized predictive metrics that are used to create the potential solutions are also used as the criteria by which to evaluate each solution. the individuals involved in executing the process are asked if a proposed concept is better. Each solution is evaluated against the baseline concept for each of the top predictive metrics.4. This can be stated with certainty since the features that are created drive the metrics that predict the delivery of value. The features satisfy the most important customer desired outcomes. It is common to use between 30 and 60 metrics in the evaluation.182
Appendix C
be prioritized using matrix analysis. worse or the same as the baseline concept at:
1.

A concept score of 69. This score is calculated by
.2. the normalized importance values in the right-hand column are either added or subtracted to the score to obtain a total concept score of 69. Each of these cases is illustrated in Table C. If the proposed concept is worse than the alternative concept at ‘‘reducing the time required to test the system.4 Evaluating a Concept
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It should be noted that the concept against which all others are compared is often referred to as the baseline concept.4.4. For example. if a metric had a normalized importance value of 7. As stated earlier. as illustrated in Table C. then the algorithm does not add or subtract the normalized importance value from the total score. When using this evaluation method.7 that means the satisfaction of 7.’’ then the algorithm used to calculate the concept score adds the normalized importance value associated with that metric to the total score.7% of the total number of desired outcomes is predicted by that one metric. If the proposed concept is the same as the alternative concept. The normalized importance values of all the metrics total 100%.’’ then the algorithm used to calculate the concept score subtracts the normalized importance value associated with that metric from the total score.2% of the desired outcomes are better satisﬁed by the concept under evaluation that the concept it is being compared against. If the proposed concept is better than the baseline or alternative concept at ‘‘reducing the volume of healthy cells that are contacted during the surgery. The normalized importance value for each metric is added or subtracted to the score to obtain the total concept score. the scores for each concept are calculated relative to the baseline concept.Appendix C Table C. the normalized importance value represents the percent of desired outcomes whose satisfaction is predicted by that metric.2 indicates that 69. As an example.

This rating. For this reason. A concept that receives a score of 5 to 15 offers incremental improvement over the alternative solution. since a better solution is known to exist. one concept may be better than another concept. A concept that has a score of 50 or more offers breakthrough improvement over the alternative solution. The disadvantage is that. as doing so invokes the law of diminishing returns. combined with the normalized importance value asso-
. It is not uncommon to create a strategy or solution that scores between 50 and 80 when using this process. an evaluation against more than 30 to 60 metrics is rarely required. In other words. you do not know the degree to which the solution is fully evolved. The concepts could be tested against all the metrics.7 69. where 10 means the solution will move the metric to its fully evolved position and 0 means the concept has no impact on the metric. the metrics are in priority order.2. 40. Improving the quality of strategies and solutions to this degree greatly enhances an organization’s ability to create value for its customers and stakeholders. but they may both be fairly ineffective concepts. and it is common to ﬁnd that 30% of the metrics predict the satisfaction of up to 70% of the desired outcomes.184
Appendix C
simply adding all the evaluation scores for the stated metrics. in other words. This method evaluates the potential for each solution to evolve each metric to its ultimate target value without requiring a comparison to other solutions or a baseline concept. This methodology requires an organization to rate the ability of a proposed strategy or solution to achieve the ultimate target value for each metric.1 25. The second method for evaluating the potential of a proposed strategy or solution involves testing the solution to determine the degree to which it has achieved a fully evolved position. we have developed a second evaluation method that overcomes these disadvantages. When using this evaluation method. the score does not take into consideration how much better one concept is over another for each metric. a concept may score between 100 and 100. The other disadvantage is that although you know that one concept is better than the other concept.5 7. For example. although you can determine which concept is better. testing it to determine how close it is to being the theoretically perfect concept. but as we know.3 0 11. Evaluations against a baseline concept can typically be completed in 20 to 30 minutes. The rating is established using a scale of 0 to 10. A concept that receives a negative score should probably not be implemented. As a result. A score in this range is typically achieved when successfully applying Solution-Based Logic techniques to the process of strategy formulation. The objective of using this process is to create a breakthrough solution. Possessing this capability provides the organization with a tremendous advantage. One advantage of using this method to evaluate the potential of a solution is that it’s fairly easy to identify if one concept is better than another along a speciﬁc dimension. This is the world in which most organizations live today. This score will not enable you to make that determination.

Appendix C

185

ciated with the metric, is used in an algorithm to calculate the concept score. So, if a solution scores 53% for example, that means the proposed solution evolves the product, service, process or subject of interest to 53% of its fully evolved position. If that were the case, then there would continue to be a considerable opportunity for improvement. If a solution scores 90%, then that means the proposed solution evolves the product, service, process or subject of interest to 90% of its fully evolved position, and only a small amount of opportunity for improvement remains. This method enables you to determine how much better one concept is over another and the degree to which the theoretically perfect concept has been created. When using this method, a concept can obtain a score between 0 and 100, where 100 means the concept is fully evolved. A concept can only obtain a score of 100 if it drives each metric to its ultimate target value. The disadvantage of using this method is that it may take more time than simply comparing a concept against a baseline concept. We have found that individuals typically ﬁnd it slightly more difﬁcult comparing concepts against the theoretically perfect concept than they do comparing them against other concepts. Regardless of which evaluation method is used, it is important to note that the evaluation is taking place at the concept stage—at the time of conception. Having the ability to make this evaluation before the solution is actually designed, prepared, developed, prototyped or implemented saves an organization both time and money. It enables an organization to implement only the strategies and solutions that will create the most value for the organization and its customers. USING PREDICTIVE METRICS TO CREATE THE OPTIMAL SOLUTION Once the solutions have been evaluated using either method, they can be improved through the use of an iterative technique. It is this technique that often leads to the creation of a breakthrough solution. This is the third step associated with the application of Outcome-Based Logic. Improvements to the best solution are made by eliminating its known weaknesses and replacing them with strengths discovered in other solutions during the evaluation. For example, the highest scoring solution may have a weakness that is identiﬁed when the concepts are evaluated. Weaknesses are identiﬁed when it is determined that the highest scoring solution did not score as well as another concept on a speciﬁc metric. The only way another concept can score better than the highest scoring concept on a speciﬁc metric is if it contains a feature that is not currently found in the highest scoring concept. The idea is to then take the feature from the lower scoring concept and determine if it can be included in the highest scoring concept. If the feature can be included in the highest scoring concept, then you have just improved the highest scoring concept by eliminating one of its weaknesses.

186

Appendix C

This activity produces new solutions and concepts that are then evaluated. Multiple solutions may be created, tested, combined, improved and re-tested. After several iterations of improvement, the optimal solution is identiﬁed. When using the evaluation method that compares concepts against a baseline concept, it is often best to change the baseline for comparison to discriminate between the differences in each proposed solution. As the top concepts emerge, it is best to compare them against each other rather than against a less valued alternative. For example, Concept A may have a rating of 42% and Concept B may have a rating of 41% when they are compared to Concept C. Such ratings indicate the two concepts deliver nearly equal value. When Concept A is compared to Concept B directly, it may be found that Concept A will obtain a rating of 20%. In conclusion, both Concepts A and B may appear to be equal when compared to Concept C, but Concept A may be found to be superior to Concept B when compared to it directly. Changing the baseline for comparison helps to create and uncover the optimal solution. A question that typically arises is, ‘‘If more than one individual or organization uses this process to formulate a strategy or solution relating to the same mission, would they reach the same conclusion?’’ It is important to note that the solutions derived through the use of this process are dependent on the knowledge, skills and creative talents of those using the process. Given that knowledge, skills and creative talents vary from organization to organization, it is unlikely that any two organizations would reach the same conclusion. The ﬁnal result is dependent on what an organization is able to include in its universe of possible solutions. This process is not a substitute for great people. It simply ensures that they are focused on the creation of value. USING PREDICTIVE METRICS FOR MEASURING AND REWARDING IMPROVEMENT Predictive metrics describe the activities that must be completed to effectively evolve the process, product, service or strategy under consideration. They are often assigned target values that deﬁne an organization’s desired competitive position. This information is of value to those who are responsible for evolving the process, product, service or strategy of interest and to those responsible for managing that evolution. Management may use this information to track the progress that is being made by the individuals who are responsible for achieving the assigned target values. Using this information to manage the evolution of a process, product, service or strategy ensures that workers are focused on the creation of value. Using this information to measure and reward employee performance ties the reward system directly to the creation of customer value. As an example, the performance of individuals who are assigned the target values for the predictive metrics in Table C.5 may be tracked and rewarded, as appropriate.

Appendix C Table C.5 Tying Rewards to the Creation of Value

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Many employee performance measurement and reward systems are not tied to the creation of customer value, because the measures that predict the creation of value are rarely known. But, as stated by C. Dan McArthur and Larry Womack in Outcome Management (1995), ‘‘If the company’s current formal and informal reward system does not reward the kind of behaviors required to move the organization to a new level of performance, the reward system must be changed.’’ Using predictive metrics as a basis for measuring employee performance ensures each employee is motivated to focus on the criteria that creates customer and stockholder value. We often deﬁne quality as the degree to which all the customers’ desired outcomes are satisﬁed given a speciﬁed mission. Successfully tying the employee reward system to the metrics that predict the satisfaction of customer desired outcomes will effectively drive employees to focus on quality. They will be focused on taking the actions that will deliver quality as deﬁned by the customer. So as we have demonstrated predictive metrics are used throughout the execution of this advanced strategy formulation process to achieve a variety of objectives—all of which are focused on the creation and delivery of customer value and all of which are focused on formulating breakthrough strategies and solutions.

Basic Desired Outcome: A desired outcome that has been so well satisﬁed or evolved by previous solutions that customers expect the same level of satisfaction from any future solution. This is accomplished in this process by determining how well the competing items perform against a set of appropriate predictive metrics. that weight the importance of that customer group relative to other customer groups in the customer set. assigned to the weighting of a customer group.Glossary
Accelerated Growth: The enhanced. Assigned Values: The numerical values. develop plans and make complex decisions. Baseline Concept: The concept against which all other concepts are compared when conducting concept evaluation and testing. technology or organization.
. processes and strategies. CD-MAP: The Customer-Driven Mission Achievement Process (CD-MAP) is a process that enhances the ability of an individual or organization to formulate strategies. Breakthrough solutions often deliver up to 10 times more value than commonly implemented solutions and enable an organization to leapfrog their competition. This process enables organizations to accelerate the evolution of their products. service. services. product. Breakthrough Solution: A solution or strategy that satisﬁes over 50% of the customers’ desired outcomes better than an existing strategy or solution. CD-MAP Facilitator: An individual trained in the execution of the CD-MAP process who works with a team within an organization to ensure the integrity of the process. systematic evolution of a speciﬁc process. technologies or organizations against a set of metrics to determine the relative competitive position of each. The assigned values are based on best practices as determined through project experience. Benchmark: The process of comparing different products. Breakthrough solutions also often provide an organization with a unique and valued competitive position.

A cluster is derived through a computer analysis of the data received from appropriately conducted quantitative research. Concept Features/Elements: The components or attributes of a concept that individually deliver unique value. Concept Optimization: A method used to systematically create the solution that will deliver the most value to customers in a speciﬁed target segment. which restricts freedom of choice. Constraint: A boundary condition placed on the potential solution or strategy. Concept: An idea. if an organization wants to improve the process of surgery. Cluster Analysis: This is a multi-variant. As an example.190
Glossary
CD-MAP Team: A group of individuals within an organization who represent the functions required to execute the resulting strategy or solution. Constraints are typically imposed by an individual. Customer: An individual or group of individuals involved in. This technique is used in the CD-MAP process to conduct segmentation analysis using the desired outcomes as the basis for segmentation. or affected by. support staff.
. Customer Set: All of the customer types that are involved in. constraints and the desired competitive position. hospital administrators. Constants: Elements of the Universal Strategy Formulation Model (USFM) that are stable within the time period in which the mission must be achieved. the organization or by a third party. A constraint must be satisﬁed by the chosen solution. the manufacturer of the product and the individuals within the organization who are providing the solution. As an example. an end-user. Features are mutually exclusive components of a concept. decisionmaker and distributor are customer types who combine to form a customer set. Team member selection is based on speciﬁc criteria. statistical analysis technique that ﬁnds groups of customers who value the same desired outcomes. The desired competitive position is established through target values that are deﬁned for the most important predictive metrics. plan or decision that is being contemplated. Concept Score: A numerical value that quantiﬁes the percent of desired outcomes that are better satisﬁed by the concept under evaluation than the concept it is being evaluated against. To achieve the desired competitive position. Concept Evaluation or Testing: A method used to evaluate a concept’s potential to deliver value to customers in a speciﬁed target segment. the decision. the customers may include surgeons. plan or strategy that is being contemplated. or affected by. Customer Weighting: The numerical value assigned to a customer type that deﬁnes their importance as a customer relative to other customer types in the customer set. The elements include customer desired outcomes. strategy or potential solution in its conceptual or theoretical stage. the strategy. Desired Competitive Position: A unique and valued position that an organization desires to achieve relative to its competitors. Cluster: A group of individuals who are statistically similar in terms of which desired outcomes they value most. and team members are empowered to make decisions and take action. the chosen solution must satisfy the most important desired outcomes better than any solution employed or planned by a competitor.

Implementation: The execution of a plan or strategy. free from vague words such as ‘‘easy’’ or ‘‘reliable’’ and are statements that are stable over time. A mission may be large or small in scope. that describes an important beneﬁt they would like to receive from the strategy. matrix analysis is used to identify the relationship between predictive metrics and desired outcomes. It is also used. Feasibility Factors: Factors that must be considered to evaluate the feasibility of a speciﬁc concept. Mission: A speciﬁc task or project with which an individual or organization is charged. Internal Customer: An individual or organization engaged in the business of evolving a process or enabling the achievement of a set of desired outcomes. Direction of Improvement: The direction in which a predictive metric is to be evolved or improved. Desired outcomes are unique in that they are free from solutions. The participants are pre-screened to meet the speciﬁed target segment criteria. service or organization. plan or decision that is being contemplated. Matrix Analysis: A tool that assists in identifying the relationships that exist between two sets of data. Normalized Importance: An algorithm that prioritizes the predictive metrics in the order of their predictive value. The data represent the importance and satisfaction that an individual places on a speciﬁed set of desired outcomes. A session typically involves 10 participants and a desired outcome gathering expert. Importance: The numerical value an individual places on a desired outcome that reﬂects the individual’s desire to achieve that outcome. speciﬁcations and technologies. Importance and Satisfaction Data: Quantiﬁed importance and satisfaction data that are obtained through statistically valid research. Feature: The components or attributes of a concept that individually deliver unique value. Lateral Thinking: A method of thinking in which an individual searches across multiple disciplines. to prioritize the predictive metrics based on their predictive value. Feasibility factors usually include cost. When deﬁning a mission. this type of solution requires interaction between individuals. industries or cultures in an attempt to uncover the optimal solution. extending the focus of the mission past the existing boundaries of a stated process will often create new opportunity. Desired Outcome Gathering Session: Qualitative research conducted with individuals who are involved in diverse aspects of a speciﬁc process. Features are mutually exclusive components of a concept.
. A high priority predictive metric will predict the satisfaction of several important desired outcomes. product.Glossary
191
Desired Outcome: A desired outcome is a statement. External Customer: The individual or group of individuals external to the company who will receive value from the evolution of the process or the achievement of desired outcomes. risk and effort. plan or decision. Executable Plan of Action: A series of actions carried out by individuals that satisfy a set of desired outcomes or execute a process. in conjunction with the normalized importance algorithm. made by an individual involved in or affected by a strategy. In an organization. In the CD-MAP process.

service or organization are satisﬁed. Process Evolution: Improving the degree to which the desired outcomes of a process. The evolution can be measured using the target values assigned to the predictive metrics. Optimal Solution: The one solution or strategy that will satisfy the largest number of important desired outcomes given the internal and external constraints imposed on the solution and the competitive position that is desired. moderate or strong predictive relationship with a desired outcome. weak. Process: A series of activities. Predictive Metric: A parameter that can be measured today to ensure its corresponding desired outcome will be achieved in the future. Predictive values typically reﬂect a non-predictive. the optimal solution is determined and selected. the results of the evaluation are used to assist in improving each solution by replacing its weaknesses with valued attributes from other solutions. A predictive metric may also be referred to as a predictive success factor.192
Glossary
Opportunity: Desired outcomes that an individual. risk and effort. technologies or organizations to determine the current competitive position of each and to establish a desired strategic position for the future. Outcome Prioritization Method: The numerical value or calculation that is used to prioritize the desired outcomes. or their corresponding satisfaction values only. Predictive Logic: Predictive logic is characterized by thinking about what can be done now to ensure or predict that a desired outcome will be better satisﬁed in the future. The optimal solution is typically a breakthrough solution. a single. Examples of processes include conducting surgery. Positioning: The process of comparing different products. segment or total population perceive to be both important and unsatisﬁed. developing a product and formulating a strategy. After several iterations of improvement. Outcome-Based Logic is characterized as follows. First. Outcome-Based Logic: The logic that is used in the CD-MAP process to execute the USFM.
. making an acquisition. Predictive Value: A numerical value that reﬂects the degree to which a predictive metric predicts the satisfaction of a speciﬁc desired outcome. The desired outcomes are typically prioritized by: their corresponding importance values. Second. strong predictive metric is deﬁned for each desired outcome. manufacturing a product. In the CD-MAP process. all of the criteria to be used to evaluate any potential solution are deﬁned and prioritized. actions or events that produce a desired result. Cluster analysis is executed to create the segments. Third. The optimal solution will also be the solution that delivers the most value for the least cost. A predictive metric is measured and controlled in the design of the solution and predicts the solution will satisfy one or more desired outcomes. their corresponding importance and satisfaction values in a calculation that identiﬁes opportunity. The segments are then proﬁled to determine their composition. that criteria is used to drive the actual creation of a variety of potential solutions and evaluate the potential of each solution. Outcome-Based Segmentation: Quantitative market research that uses desired outcomes as the basis for segmentation. product.

The sample is designed to represent all target segments within the population. individuals evaluate each of the proposed solutions to determine the best solution. The methods used to accomplish this task may include concept testing. desired outcomes are used as the basis for segmentation. or who must interact with those involved in a speciﬁc process. as the provider executes the process of interest for the individual or organization. the best solution is selected based on the results of the previous steps. that requires consideration. a business size. conjoint analysis. Strategy: A strategy is a plan.Glossary
193
Product: A device that is used by an individual or organization to assist in the execution of a process or to achieve a set of desired outcomes. Sample: A grid that deﬁnes the types and number of individuals who will be interviewed as part of quantitative market research. other convenient statistical classiﬁcations or clusters derived through segmentation analysis.
. Screening Criteria: Criteria used to ensure the customers interviewed for qualitative and quantitative research are representative of the target population. Qualitative research is conducted as part of the CD-MAP process to uncover desired outcomes. A segment may include an industry. or potentially exist. The methods may include brainstorming. User interaction with the device is characteristic of a product. It is an executable plan of action that describes how an individual or organization will achieve a stated mission. Stakeholder: An individual or group of individuals who are responsible for the creation of a product service or strategy. research or other methods. Solution: A speciﬁc set of features that form the basis of a plan or strategy. Qualitative Research: Market research that is conducted to uncover desired outcomes on the subject of interest. Solutions are treated as variables in the USFM. Second. Satisfaction: The numerical value an individual places on a desired outcome that reﬂects the individual’s perception of how well the desired outcome is currently satisﬁed. Solution-Based Logic: The logic pattern that is commonly used to formulate strategies. Third. Service: A means by which desired outcomes are satisﬁed for an individual or organization by a third party. A proposed solution is often referred to as a plan or a strategy. Segmentation: A method of ﬁnding individuals in a population who value the same desired outcomes. External customer interaction is common with the service provider. Solution-Based Logic is characterized as follows. Segment: A group of individuals who are considered a potential target market. This is accomplished using a statistical technique called cluster analysis. quantitative research or other methods. and deﬁne how the desired outcomes will be achieved. When executing the CD-MAP process. individuals use various methods to think of several different solutions. First. It is typically conducted as a group interview or personal interview. Quantitative Research: Market research that is conducted to quantify the importance and perceived satisfaction level of each desired outcome. Scenario: A situation that may currently exist.

The model can be explained as follows. User Environments: Situations in which individuals desire to execute the process of interest. When all the ultimate target values are achieved. service or organization under consideration. The model deﬁnes desired outcomes. Ultimate Target Value: The target value that will drive a predictive metric to a fully evolved position. Strategyn: An organization whose mission is to provide individuals and businesses with tools that evolve their ability to formulate strategies. When formulating a strategy or solution. constraints and the desired competitive position as constants in an equation and the universe of possible solutions as variables. Once the constants are deﬁned. product. The Total Quality Group: A consulting ﬁrm that specializes in the development and facilitation of the CD-MAP. Synergy Analysis: A method for determining the relationships that exist between each desired outcome and each predictive metric. deﬁne plans. make complex decisions and achieve their valued missions.194
Glossary
Strategy Formulation: The process of creating a strategy. Target Values: Values assigned to predictive metrics to guide the level of satisfaction that must be achieved by any proposed solution. product. service or organization will be fully evolved. The relationships are uncovered using matrix analysis. the process. As each of the ultimate target values are achieved.’’ Universe of Possible Solutions: Any solution that could possibly improve or evolve the process. the process. Universal Strategy Formulation Model (USFM): The USFM describes what organizations must do to formulate a breakthrough strategy or solution. Value Creation: Increasing an individual’s perceived level of satisfaction on one or more desired outcomes. solutions are then evaluated until the optimal solution is found and the equation is ‘‘solved. The USFM is designed to formulate strategies and plans using a mathematical structure. That one solution is the optimal solution. Value: The degree to which a solution will satisfy a set of desired outcomes versus the cost of acquiring the solution. Target values are set to ensure the ﬁnal solution will enable an organization to occupy its desired competitive position. service or organization will be fully evolved along that stated dimension. product. an organization must search through the universe of possible solutions in an attempt to ﬁnd the one solution that will satisfy the largest number of important desired outcomes given the internal and external constraints imposed on the solution and the competitive position that is desired. Target Segment: The individual or group of individuals who the internal customers have chosen to serve. When formulating a strategy or solution. the predictive metrics that have the most synergy can be determined. there often exists hundreds or even thousands of possible solutions.
. Once the relationships have been established.

concepts and ideas that form the universe of possible solutions. All potential solutions are treated as variables when executing the USFM. Weighted Importance: The importance assigned to a desired outcome given its numerical importance rating and the weighting assigned to that particular customer set. Weight: A numerical value that reﬂects the perceived importance of a speciﬁc desired outcome or a customer type.
. They include the features.Glossary
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Variables: Elements of the USFM that change over time. They change over time as new ideas evolve and new technologies become available.

a consulting group that specializes in helping Fortune 100 companies formulate business strategies. a software and information technology company that provides business and consulting ﬁrms with advanced strategy formulation technology.About the Author ANTHONY W.com. He is also founder and President of Strategyn. ULWICK is founder and President of the Total Quality Group.
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